Earnest Money Deposit 101

What Is an Earnest Money Deposit?

When you’re buying a home, you’ll likely hear the term Earnest Money Deposit (EMD)—sometimes called a Good Faith Deposit. This is a sum of money a buyer puts down early in the transaction to demonstrate genuine intent to purchase the property. In most cases, the amount ranges from 1–3% of the sales price, though it can vary depending on the market.

Once submitted, the Earnest Money Deposit is held in an escrow account until closing. As long as the sale moves forward as planned, those funds are applied toward the buyer’s closing costs or down payment.

Why Earnest Money Matters to Sellers

For sellers, the Earnest Money Deposit offers peace of mind. It signals that the buyer is committed and provides some financial protection while the home is off the market.

If the contract falls apart due to a valid contingency—for example, an unsatisfactory home inspection, issues uncovered during title search, or a problem with the buyer’s financing—then the buyer is fully entitled to get their deposit back.

However, if a buyer backs out for reasons not covered in the contract, the seller may have the right to keep some or all of the Earnest Money Deposit. These funds can help offset the costs and lost time associated with taking the home off the market and re-listing.

The Bottom Line

An Earnest Money Deposit is a key part of the home-buying process. It protects both parties: buyers show they’re serious, and sellers gain confidence that the transaction will move forward. Understanding how it works can help you navigate your purchase with clarity and confidence.