Earnest Money: Your Secret to Homebuying Success

Posty note with the words earnest moneyAre you a veteran looking to buy a home? If so, you may be interested in a VA loan. VA loans are a type of mortgage loan available to veterans and their surviving spouses. VA loans offer several benefits, including no down payment required, no mortgage insurance, and relaxed credit score requirements.

This article will discuss the earnest money deposit (EMD) in more detail. We will explain an EMD, its calculation, and the VA loan EMD requirement. We will also provide tips on how to save for an EMD.

What is an Earnest Money Deposit for a VA Loan?

An earnest money deposit is a payment made by the buyer to the seller to show their serious intent to purchase a property. For a VA loan, the earnest money deposit demonstrates the buyer's commitment to the transaction. This deposit is typically a small percentage of the overall purchase price and is held in an escrow account until the loan's closing.

If the deal goes through, the earnest money deposit can be applied toward the down payment or closing costs. However, suppose the buyer fails to meet the obligations outlined in the contract, such as backing out of the agreement without a justifiable reason. In that case, the seller may be entitled to keep the earnest money deposit as compensation.

How is an Earnest Money Deposit Calculated?

When you want to buy a house, you might need to give the seller some money to show you are serious. This is called an earnest money deposit, usually part of the price you will pay for the house. The money you need to give depends on where you live and how many people want to buy the house. Sometimes it is 1–3% of the price, but sometimes it can be as much as 10%. You can talk to your agent or lawyer to help you decide how much money to give, but you and the seller must agree.

What is the VA Loan EMD Requirement?

VA loans are for veterans, active-duty military personnel, and surviving spouses. You don't need to put any money down for the down payment. But you need to know about the earnest Money Deposit (EMD). The EMD is a deposit that shows you're committed to buying the property. It's also called "good faith" money because it shows the seller you're serious. The EMD can be 1 to 5 percent of the sale price, and some sellers or real estate agents may require it before they accept your offer.

Frequently Asked Questions About Earnest Money Deposits

What is Earnest Money Used for?

The deposit, also known as the earnest money deposit, is significant when buying a house. It shows the seller that the buyer is serious about purchasing the property. The warranty is like insurance for the seller if something goes wrong. The deposit is usually held by a title company or real estate agency until the deal is done. If everything goes well, the deposit will be used to pay for the house. If something unexpected happens, like a problem with the title, the promise might be refunded.

Earnest money is essential when buying a home because it shows the buyer is committed to it. If the buyer changes their mind without a valid reason, they will lose the deposit. But they can get their money back if there is a good reason. Earnest cash guarantees the purchase will be completed, proving the buyer is serious and protecting the seller. So, buyers should think about earnest money before agreeing to buy a home.

Is Earnest Money Refundable?

If you change your mind or can't get financing, you might wonder if you can get your earnest money back. Usually, you can get it back if the deal doesn't work out. But sometimes, the seller might keep it if you don't meet the conditions in your contract or cancel the sale for no reason. To know for sure, read your agreement carefully and ask your real estate agent or lawyer if you have any questions.

How Much Earnest Money Should You Offer?

Earnest money deposits are a payment you make when buying a home. They usually range from 1 to 3 percent of the home's price. So, if you're buying a $300,000 home, your deposit could be between $3,000 and $9,000. The amount you pay depends on the home's price and your situation. If the home costs more, you'll usually pay more. Sometimes, sellers ask for a higher deposit in a busy housing market to show you're serious about buying.

If you want to buy a house and the seller has agreed, you can put down less money at first. But if other people are interested in the home or want to show you're serious, you should put down more money. Ask your real estate agent or loan officer for advice on how much to put down based on your situation.

Does Earnest Money Go Toward the Down Payment?

Usually, the earnest money can be used for the down payment or closing fees. The down payment is the amount the buyer pays initially, and a mortgage loan covers the rest. The earnest money can sometimes be used for the down payment, but not always.

When Can the Seller Keep My Earnest Money?

Real estate sales contracts protect buyers from specific problems. You get your earnest money back if you cancel the contract because of an agreed-upon issue. You also get your money back if the house fails inspection, the appraised value is lower than the sale price, there are title search problems, or you can't get a mortgage.

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

  1. You must satisfy the timeframes specified in the contract for the Various inspections and appraisals.
  2. You decided to withdraw from the sale without a Valid reason.

When is Earnest Money Due?

When you buy a home, you may wonder when to give the earnest money deposit. You usually pay it with a personal check, certified or cashier's check, or wire transfer to the seller if they accept your offer. The buyer's agent or title company holds the deposit in an escrow account until closing. Unless you agree on a different time, you should give the warranty when you make an offer.

If the deal falls through, you usually get your deposit back, even if you can't get financing. But you may lose the property if you don't give the guarantee on time or the check bounces. The title company or agent usually holds the deposit until closing and then gives it to the seller.

Is Earnest Money Required?

The answer is maybe. Sometimes, sellers may request a good-faith deposit as part of the sales agreement. In other cases, buyers may deposit money 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?

Sometimes, things like the appraisal, bank approval, property inspection, or HOA deed approval might take longer than expected. When you buy a home, the money you give as earnest money can be used for your down payment or closing costs. This money gets cashed when the escrow starts, so you must use suitable funds.

The steps involved:

  1. The earnest money and the accepted purchase contract are 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 the seller's closing costs.
  3. The earnest money will be refunded to the buyer if no closing costs or down payment are required. This often happens when purchasers pay cash.

If the buyer withdraws, what happens to the earnest money?

If the buyer cancels, they lose the earnest money deposit. The deposit shows the buyer's intention to buy the property. Sometimes, the buyer can get their deposit back. For instance, if the seller cancels or has hidden problems with the property, the deposit can only be refunded in certain situations.

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. When this occurs, the buyer needs to point to a contingency in the purchase contract for not going through with the purchase; otherwise, the buyer will forfeit the earnest money deposit.

Will I Lose My Deposit if I Am Denied a Mortgage?

To protect your money, make sure your agreement has a contingency clause. This will keep your money in an escrow account. If your application is declined, you can get your money back. But if you decide not to proceed with the mortgage, you will lose your deposit. To avoid this, give your money to a real estate brokerage, and they will hold it safely until the deal is closed.

Can Earnest Money Be a Personal Check?

You might need a certified or cashier's check to deposit earnest money. However, some sellers might accept a personal statement instead. Before you write the review, ensure it's dated on a perfect day, and you have enough money in your account. The deposit is usually half the purchase price, so you'll need cash. Ask if the seller will take a personal check, and if they will, follow the steps to ensure the check clears and the deposit goes through.

Can Earnest Money Be a Gift on a VA Loan?

Unfortunately, earnest money cannot be considered a gift on a VA loan. The VA has specific rules regarding the sourcing of funds and requires the borrower to have a personal financial stake in the transaction. Earnest money is seen as a demonstration of the borrower's commitment and cannot be waived or gifted. 


In conclusion, the earnest money deposit (EMD) is an integral part of the home-buying process for VA loan borrowers. By understanding what an EMD is, how it is calculated, and what the VA loan EMD requirement is, you can be prepared to make an offer on a home and increase your chances of getting approved for a VA loan.

Here are some additional tips for saving for an EMD:

  • Start saving early. The sooner you save, the more time you will have to accumulate a larger EMD.
  • Set a goal: Decide how much you want to save for your EMD and create a budget to help you reach your goal.
  • Cut back on unnecessary expenses. Look for ways to reduce your costs to save more money for your EMD.
  • Get a part-time job: If you need to, get a part-time job to help you save for your EMD.
  • Ask for help from family and friends. If you are struggling to save for your EMD, don't be afraid to ask for help from family and friends.

By following these tips, you can save for an EMD and be prepared to make an offer on a home.

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Recommended Reading
Understanding the VA Amendatory Clause 
Understanding VA Loan Closing Costs in 2023 

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