Earnest Money vs. Down Payment: What’s the Difference?
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Richard Haddad Executive EditorClose
Richard Haddad Executive EditorRichard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
When buying a home, “earnest money” and “down payment” are two terms you’ll hear a lot early in the process. Because both involve paying money upfront, it’s easy to confuse them, especially if this is your first time buying a house.
However, they serve very different purposes:
- Earnest money is a good-faith deposit you submit shortly after your offer is accepted.
- A down payment is the larger amount you pay at closing toward the home purchase itself.
In this brief post, we’ll take a closer look at how they compare, when they’re paid, and how much you may need for each. We’ll also provide two calculators to help you plan ahead.
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Earnest money vs. down payment at a glance
| Earnest money | Down payment | |
| Purpose | Shows the seller you’re serious about buying | Reduces the amount you borrow from your lender |
| When it’s paid | Shortly after offer acceptance | At closing |
| Typical amount | Around 1%–3% of the purchase price | Often 3%–20% of the purchase price |
| Where the money goes | Held in an escrow account | Paid toward the home purchase |
| Refundable? | Sometimes, depending on contingencies and contract terms | Generally no, once the sale closes |
| Applied toward your costs? | Usually credited toward your down payment or closing costs | Paid directly toward the home purchase |
What is earnest money?
Earnest money is the deposit you’ll submit after a seller accepts your offer on a home. It’s designed to show the seller that you are serious about moving forward with the purchase.
The money is typically held in an escrow account until closing. If the sale goes through, your earnest money is usually applied toward your down payment or closing costs.
The amount can vary depending on the market and purchase price, but buyers commonly put down around 1% to 3% of the home’s price as earnest money.
Your earnest money may be refundable if you back out for a reason covered by a contingency in your purchase agreement, such as financing or inspection issues. But if you walk away from the deal for a reason not protected by your contract, you could lose your deposit.
Want to estimate how much earnest money you may need? Use our calculator below.
What is a down payment?
A down payment is the portion of your home’s purchase price that you pay upfront at closing. The rest is typically financed through your mortgage loan.
For example, if you buy a $400,000 home with a 10% down payment, you would pay $40,000 upfront and finance the remaining amount through your lender.
The amount required depends on several factors, including:
- Your loan type
- Your credit score
- Your lender’s requirements
- Your qualifications as a buyer
Some loan programs allow qualified buyers to put down as little as 3%, especially certain conventional loans aimed at first-time or low- to moderate-income buyers. Others may require a larger down payment.
Whether required or not, a larger down payment can help reduce your monthly mortgage payments and may help you avoid private mortgage insurance (PMI) on conventional loans. PMI is an additional monthly fee that lenders charge if your down payment is less than 20%.
Use the calculator below to estimate what your down payment could look like based on different home prices and loan scenarios.
Does earnest money count toward the down payment?
In most home purchases, earnest money is credited toward your down payment or closing costs.
For example, let’s say:
- Your required down payment is $20,000
- You already paid $5,000 in earnest money after your offer was accepted
At closing, that $5,000 would typically be applied toward the total amount you owe, meaning you may only need to bring the remaining $15,000 for the down payment, plus any applicable closing costs.
FAQs about earnest money and down payments
It can be. Whether your earnest money is refundable depends on the terms of your purchase agreement and whether you cancel the deal for a reason protected by a contingency.
Not always, but earnest money is common in most real estate transactions. In competitive markets, you may need a larger earnest money deposit to make your offer stand out.
Yes. In many transactions, earnest money may be applied toward closing costs, the down payment, or a combination of both.
Potentially, yes. Home purchase agreements often include strict deadlines for inspections, financing, and contingencies. Missing those deadlines could put your earnest money deposit at risk if the deal falls through afterward.
It depends on the loan and your qualifications as a buyer. Many buyers put down between 3% and 20% of the home’s purchase price.
A top agent can help you plan what funds you need
Earnest money and a down payment are both important parts of the homebuying process, but they happen at different stages and serve different purposes.
Using tools like HomeLight’s Earnest Money Calculator and Down Payment Calculator can help you better understand what you may need before making an offer on a home. You might also try our Home Affordability Calculator.
To learn more, visit HomeLight’s Buyer Resource Center, where you can search for answers to all your homebuying questions. You can also use HomeLight’s free Agent Match platform to consult with a trusted local buyer’s agent.
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