VA Loan Earnest Money Deposit

Do I have to make an earnest money deposit?

This is how the earnest money deposit works

Earnest money depositYou've saved up for years, done your research, and finally found the perfect home. Congratulations! The next step is to put down an earnest money deposit (EMD). Here's what you need to know about this key part of the home-buying process.

What is Earnest Money?

When you buy a home, the purchase offer will usually require that you put down an "earnest money deposit". This is a good faith deposit that shows the Seller that you are serious about buying their home. The amount of earnest money varies, but is typically 1-3% of the purchase price in most real estate markets. So, if you are buying a $200,000 home, your earnest money deposit would be $2,000-$6,000. 

The earnest money deposit is held in escrow until closing. At that time, it is applied towards your down payment. If for some reason the deal falls through (e.g. you can't get financing), then your earnest money deposit will usually be refunded to you.

Putting down an earnest money deposit is just one of the many steps involved in buying a home. But it's an important one! Earnest money deposits show the Seller that you're committed to buying their home, and they will take your offer more seriously as a result.

What is Earnest Money Used for?

In a real estate transaction, the earnest money deposit is like insurance for the seller. It shows that you're committed to buying the property and it protects them if you back out of the deal for any reason that isn't specified in the contract.

For example, if you get cold feet or decide you don't like the home after the inspection, you could lose your earnest money deposit. However, if something happens that was out of your control, like the seller not being able to provide clear title to the property, you would get your deposit back.

The deposit is usually held in escrow by the title company or real estate company until closing. At that time, it will be applied to your down payment. If everything goes smoothly and you don't back out of the deal, you'll never see that money again.

If you do back out of the deal for a reason that isn't specified in the contract, you may forfeit your earnest money deposit.

Is Earnest Money Refundable?

What happens if you change your mind or can’t get financing? Is earnest money refundable?

In most cases, earnest money is refundable if the deal falls through. However, there are some situations where the seller may keep your earnest money deposit. For example, if you fail to meet the contingencies in your contract or if you back out of the deal for no reason, the seller could keep your deposit.

It's important to read your contract thoroughly to understand your specific situation. If you have any questions, be sure to ask your real estate agent or lawyer.

How Much is Earnest Money?

Typically, earnest money deposits range from 1% to 3% of the purchase price of the home. So, if you're buying a $300,000 home, your earnest money deposit could be as low as $3,000 or as high as $9,000. 

The amount of earnest money you'll pay when buying a home varies greatly depending on the home purchase price and your personal circumstances. In general, the larger the purchase price, the higher the earnest money deposit will be.

While the size of your earnest money deposit will be based largely on the purchase price of the home, there are other factors that can influence how much you'll pay. For example, in a competitive housing market, sellers may require a higher deposit to ensure that your offer is serious.

If you have a strong offer on a home, you may be able to get away with a lower deposit. However, if your offer is not as strong or if there are multiple offers on the table, you'll likely need to increase your deposit to show that you're serious about buying the property.

If you're unsure how much earnest money to offer on a home, speak with your real estate agent or loan officer. They can help you determine an appropriate amount based on your unique situation.

Does Earnest Money Go Towards Down Payment?

In most cases, yes. The earnest money is applied to the down payment or can be credited towards closing costs.

The down payment is the portion of the purchase price that the buyer pays upfront, while the rest is covered by a mortgage loan. In some cases, however, the earnest money may not go towards the down payment.

When Can the Seller Keep My Earnest Money?

The majority of sales contracts for the purchase of real estate include provisions that safeguard the buyer with certain contingencies. Your earnest money will be returned to you if you cancel the contract due to a contingency that has been pre-approved by both parties.

If any of the following conditions are met, you will get your earnest money back:

  1. The house fails the home inspection.
  2. The property's appraised value is less than its sale price.
  3. There are problems with the title search of the residence.
  4. You are unable to secure a mortgage.

Your earnest money could be lost if any of the following apply:

1) You fail to satisfy the timeframes that are specified in the contract for the various inspections and appraisal.

2) You decided to back out of the sale, without a valid reason..

When is Earnest Money Due?

If you're in the process of buying a home, you may be wondering when your earnest money is due. Here's what you need to know about this important part of the home-buying process.

The earnest money is paid by personal check, certified or cashier's check, or wire transfer if the offer is accepted. The deposit is often kept in escrow with either the seller or buyer's real estate company, title firm, or escrow business.

Your earnest money is usually due at the time of your offer, unless you have negotiated another time period with the seller. This money is typically held in an escrow account by the title company or real estate agent until closing.

The earnest money is typically returned to the buyer in the event that the sale is unable to go through for any number of reasons (including the fact that the buyer was unable to secure financing).

If you don't pay the required earnest money on time or if the check bounces, you may lose the property. 

Is Earnest Money Required?

The answer is maybe. In some cases, sellers may require an earnest money deposit as part of the sales contract. In other cases, buyers may choose to make a deposit to show their good faith and commitment to the deal. Ultimately, whether or not an earnest money deposit is required will come down to the individual seller and buyer.

Where Does Earnest Money Go?

Where does the earnest money go?An earnest money deposit, also known as an EMD, is simply kept by a neutral third-party escrow business in accordance with the guidelines outlined in the legally binding purchase agreement.

It's possible, for instance, that there will be a 'contingency time' for the appraisal, bank approval, property inspection, or HOA deed approval.

The earnest money that is held by the escrow or title company is typically applied to the down payment or closing fees of the house buyer. This occurs in the majority of transactions.

It is essential to bear in mind that the earnest money deposit might actually be cashed at the moment the escrow is established. Because of this, you need to ensure that your funds come from the appropriate sources.

The Steps Involved:

1) Along with the purchase contract that has been accepted, the earnest money is delivered to an escrow (or title) company.

2) At settlement, the earnest money deposit is applied as a credit toward the buyer's down payment and/or the seller's closing costs.

3) If the buyer does not have any closing fees or a down payment, then the earnest money will be given back to the buyer. This usually occurs with cash buyers.

What Happens to the Earnest Money if the Buyer Backs Out?

In most cases, the buyer will forfeit their earnest money deposit if they back out of the purchase. This is because the deposit is meant to show that the buyer is committed to purchasing the home. However, there may be some circumstances where the buyer is able to get their earnest money back. For example, if the seller backs out of the deal or if there are issues with the property that were not disclosed upfront.

The deposit is only refundable under certain circumstances.

Rotating queestion markFAQs About a VA Loan Earnest Money Deposit

What causes you to lose earnest money?

1) The buyer must satisfy the contract's deadline. If the buyer can't make the deadline, for example, they may lose the earnest money if they break the contract and don't purchase the property.

2) The buyer backs out. After signing a purchase agreement, a prospective buyer sometimes chooses not to buy the home. If this occurs and the buyer can't point to a contingency in the purchase contract as the reason for not going through with the acquisition, the buyer must pay the seller the earnest money.

Will I lose my deposit if I am denied a mortgage?

If your application is denied, you will not lose your deposit (provided there's mortgage contingency). However, if your application is approved and you then decide not to go ahead with the mortgage, you will lose your deposit.

Can earnest money be a personal check?

The answer is maybe. While most sellers will require a certified check or money order for the earnest money deposit, some may be willing to accept a personal check. However, there are a few things you should keep in mind before you write that check.

First, you'll need to make sure that the check is dated for the day of or before the deposit is due. This will ensure that the check clears in time. Second, you'll need to have enough money in your account to cover the check. Remember, the earnest money deposit is typically 1-2% of the total purchase price, so you'll need to have the cash available.

If you're not sure whether the seller will accept a personal check, it's always best to ask. And, if they do accept a personal check, be sure to follow the instructions above to ensure that the check clears and the deposit is made.


I hope this article has helped shed some light on what a VA earnest money deposit is and why it's important when you're buying a home. I know that when I was first looking to buy a home, the earnest money deposit was one of the most confusing aspects of the process. But, it's actually not that complicated once you understand what it is and how it works. So, if you're in the market for a new home, make sure you keep the importance of an earnest money deposit in mind!

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