You've found the house. You're ready to make an offer. Then someone asks: "How much earnest money?" And for a moment, you wonder if that's the same as the down payment you've been saving for. It's not. Not even close. They come from different pockets, happen at different times, and carry very different risks.
When you make an offer, the seller needs some assurance you won't walk away the next morning. Earnest money sometimes called a "good faith deposit" is that assurance. It's typically 1% to 3% of the purchase price, though in competitive markets buyers sometimes go higher to stand out.
Crucially, it doesn't go to the seller. It goes into escrow, held by a neutral third party until closing. If the deal closes, that money is credited toward your total cash to close — you're not paying it on top of everything else. If the deal falls apart under a valid contingency (inspection, financing, appraisal), you typically get it back.
The down payment is your ownership stake in the home from day one. It's the difference between what you borrow and what the home costs. A 10% down payment on a $500,000 home means you're borrowing $450,000 and owning $50,000 outright on closing day.
How much you put down depends on your loan type and financial profile. Conventional loans can go as low as 3%, FHA loans start at 3.5%, and VA loans can be zero down. But a larger down payment typically gets you a better rate, removes private mortgage insurance, and signals strength to underwriters.
One thing buyers frequently forget: the down payment is separate from closing costs. Those are the fees lender charges, title insurance, prepaid taxes that add another 2% to 5% on top. Budget for both.
It gets credited at closing: Earnest money isn't an extra cost it's applied to your cash-to-close total, reducing what you owe at the table.
Bigger deposits win offers: A larger earnest money deposit signals commitment to the seller without touching your loan amount or long-term financing.
Timelines are everything: Refundability often hinges on exact contingency deadlines. One late waiver can turn a refundable deposit into a forfeited one.
Different stage. Different purpose. Different risk. Understand the difference, and you'll walk into every offer and every closing with a lot more confidence."
Questions about your specific situation? Reach out to us so we can walk you through your needs.
Joe Costa-NMLS: 113396
Park Place Collective: NMLS-2571108
Info@parkplacecollective.com
Office: 619-990-7552
