An earnest money deposit is a good-faith payment you make after the seller accepts your offer. It sits in a neutral escrow account and is credited to you at closing, so it is part of the cash you were already going to bring, not an extra charge. On an FHA purchase, the contract sets the amount, not FHA. What FHA adds is a documentation requirement for where the money came from and a built-in appraisal protection that can keep your deposit safe.
Duane Buziak, a mortgage broker who specializes in FHA purchase loans, sees the same pattern with first-time buyers: the agent says “earnest money,” and the buyer writes a check before anyone has checked how it will look to an underwriter. The sections below cover what the deposit is, how to size it, how it gets verified, and when it is at risk.
Earnest Money Deposit Defined: Good-Faith Money Held in Escrow
Quick answer: An earnest money deposit is money a homebuyer pays after a purchase contract is signed to show serious intent to buy. A title company, attorney, or broker holds it in escrow, never the seller directly. At closing it is credited toward the buyer’s down payment or closing costs. It can be forfeited if the buyer defaults without a contract-based reason.
The timing matters. The deposit comes after the seller accepts your offer, not with the offer itself, and it is spelled out in the purchase contract: the amount, the deadline to deliver it, who holds it, and the conditions under which it is returned or released. The escrow holder is usually a title company or settlement attorney, though in some markets a listing brokerage holds it in a trust account.
Because it is credited at closing, earnest money is part of your cash to close. If you owe $12,000 at the table and you already deposited $3,000, you bring the remaining $9,000. It is money you move earlier, not money you add. This is the most common misunderstanding among first-time buyers, and it is worth correcting before it scares anyone off an offer.
It also helps to separate the deposit from other early costs. The appraisal fee and any application or credit report charges pay for services already performed. Those are not refundable and are not credited back to you at closing. Earnest money is different: it is your own money, held for you, and it ends up applied to your purchase.
A few terms you will hear from here on:
- Escrow holder: the neutral party that holds the deposit until closing or until the contract directs its release.
- Contingency: a contract condition, such as financing or inspection, that lets you exit and recover your deposit if it is not met within its deadline.
- Cash to close: the total you must bring at closing after credits, including your deposit already paid.
How Much Earnest Money Do FHA Buyers Typically Put Down?
FHA sets no minimum or maximum earnest money amount. The number comes from your purchase contract and is negotiated between you and the seller, usually with your agent’s guidance. Local custom often ties it to a percentage of the price, and you will hear a range of figures. Those norms vary by market and by season, so ask your agent what is customary where you are buying rather than relying on a national number.
A worked example at a Henrico County price point
Suppose you buy a $350,000 home in Henrico County with the FHA minimum down payment of 3.5%. That down payment is $12,250. If your contract calls for a $3,500 deposit, the escrow holder credits that $3,500 at closing, and you owe the remaining $8,750 of the down payment, plus closing costs and prepaids. The deposit did not add to your total; it reduced what you wrote a check for at the table.
Prepaids are where local tax rates come in. Henrico County’s real estate tax rate is $0.85 per $100 of assessed value (as listed at henrico.us, confirm the current rate before relying on it). On a $350,000 assessment, that is about $2,975 per year, or roughly $248 per month collected into escrow. That is cash you also need to plan for beyond the deposit.
Illustrations: sample deposits against the 3.5% down payment
The figures below are arithmetic illustrations, not market statistics. Each shows a deposit at 1% and 2% of price against the 3.5% down payment.
- $250,000 price: down payment $8,750. A 1% deposit is $2,500 (leaving $6,250 of down payment). A 2% deposit is $5,000 (leaving $3,750).
- $350,000 price: down payment $12,250. A 1% deposit is $3,500 (leaving $8,750). A 2% deposit is $7,000 (leaving $5,250).
- $450,000 price: down payment $15,750. A 1% deposit is $4,500 (leaving $11,250). A 2% deposit is $9,000 (leaving $6,750).
What moves the number
A competitive market pushes buyers toward larger deposits because a bigger one signals stronger commitment. Sellers who have been burned by failed deals may ask for more. Your verified assets set the practical ceiling: a deposit you cannot document or cannot afford to risk is not a good strategy, however persuasive it looks on paper.
Where Earnest Money Comes From: FHA Sourcing and Seasoning Rules
An FHA lender has to be able to show where your deposit came from. HUD Handbook 4000.1, the FHA Single Family Housing Policy Handbook, directs lenders to document earnest money when it looks large relative to the sales price or to the borrower’s history of saving. As I understand the current handbook language, a deposit above 1% of the sales price is the trigger point, and that trigger is separate from whether the amount is out of line with your savings history. Confirm the exact wording and section in the handbook at hud.gov (verify as of October 2026), because HUD revises it periodically.
In practice, do not plan around a threshold. Plan to document every dollar, since underwriters want your funds to trace cleanly from the account they sit in to the escrow holder.
Clean sources and problem sources
- Clean: funds already sitting in your checking or savings account, supported by bank statements, paid by check or wire from that same account.
- Problem: a large cash deposit with no paper trail, or money moved in from an account you cannot show statements for. Unexplained cash tends to trigger requests for more documentation and can delay your file.
- Gift funds: allowed under FHA rules if they come from an acceptable donor, such as a family member, and are supported by a signed gift letter stating that no repayment is expected. If a gift will cover the deposit, the paperwork should be arranged before the funds move.
Paying by check or wire from your own account leaves the cleanest record. The withdrawal on your statement matches the receipt from the escrow holder, and the underwriter does not have to ask what happened in between.
This is why Duane Buziak advises buyers to call him before writing the check. A short conversation can confirm which account to use, whether a gift letter is needed, and how the deposit will appear in the file. His NoTouch Credit Pull, a soft pull with no hard inquiry, lets him review your credit profile during that early conversation without affecting your score. Then you go into the contract with a deposit you know will be accepted by underwriting.
When Earnest Money Is Refunded and When a Buyer Can Lose It
Your deposit is protected only to the extent your contract protects it. The protections are contingencies, each with a deadline. If you exercise one properly and on time, the deposit generally returns to you. If you miss the deadline, the contingency may expire and your deposit becomes exposed.
Contingencies that protect the deposit
- Financing: if you cannot obtain the loan despite good-faith effort, you can generally cancel and recover the deposit within the contract terms.
- Appraisal: tied to the home appraising at or above the contract price.
- Inspection: lets you negotiate repairs or withdraw within the inspection period.
- Home sale: if your purchase depends on selling another property, this contingency covers that timing.
The FHA Amendatory Clause
FHA adds a protection most other deposits lack. HUD requires the Amendatory Clause (part of form HUD-92800.5B) on FHA purchase contracts. It says that if the appraised value comes in below the purchase price, you are not obligated to complete the purchase and do not forfeit your earnest money. You can still choose to proceed if you wish, typically by covering the difference or renegotiating. Check the current form language at hud.gov before relying on specific wording.
Common ways deposits are lost
- Missing a contingency deadline and then deciding to back out.
- Walking away with no reason the contract recognizes.
- Failing to deliver the deposit by the date the contract sets, which can itself be a default.
If there is a dispute
An escrow holder generally cannot hand the money to either side on its own. It usually needs written releases from both parties, or a court or mediation result. State rules and contract language differ, so when a deposit is contested, read the contract’s default clause and consult a real estate attorney in your state. This article is not legal advice.
Earnest Money Timeline: From Offer to Closing Table
The sequence is predictable, and most problems come from slipping on one step.
- Offer accepted. Both sides sign and the contract date starts your deadlines.
- Deposit delivered. The contract sets the due date, commonly within a few business days, so check yours rather than assuming.
- Receipt issued. The escrow holder confirms it received your funds. Keep this for your lender.
- Loan processing. Your lender collects statements, including the one showing the deposit leaving your account.
- Appraisal and inspection. Your contingency windows run here.
- Clear to close. Underwriting approves the file and conditions are satisfied.
- Closing. The deposit is credited and you bring the remaining cash.
On your Closing Disclosure, the deposit appears as a credit against what you owe. The CFPB explains each section of the form on its Closing Disclosure page. Look for the deposit line in the summary of transactions, and confirm that the amount matches your escrow receipt.
Wire fraud caution
Deposits and closing funds are a favorite target for fraudsters who impersonate title companies and send fake wiring instructions by email. Before you send any money, call the escrow office at a phone number you found independently, such as on the company’s own website or on your contract, and verify the instructions verbally. The FBI’s Internet Crime Complaint Center (IC3) tracks these schemes and accepts reports if you think you have been targeted. Never rely on an emailed change to wiring instructions.
Earnest Money Rules for Virginia and Other States Duane Buziak Serves
Federal FHA rules shape the documentation and the Amendatory Clause protection everywhere. State law and local practice shape who holds the money and how disputes resolve. Duane Buziak is licensed in Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Washington, DC, and the differences are worth knowing.
In Virginia, deposits are typically held by a settlement agent or in a licensed brokerage’s escrow account, and the Virginia Real Estate Board sets rules for how brokers handle them. Details such as how long a broker may hold a disputed deposit are the kind of thing that changes, so check the current regulations at dpor.virginia.gov or ask your agent.
Elsewhere, practice varies, and each of these points should be confirmed with your agent or closing attorney before you rely on it:
- Florida: deposits are often held by a title company or the brokerage; the contract names the escrow agent.
- Tennessee: the holder is usually the listing brokerage or a title company, as the contract designates.
- Georgia: attorneys commonly handle closings, and the deposit is often held in an attorney or brokerage trust account.
- District of Columbia: title companies commonly hold deposits, with the holder named in the contract.
These are general patterns, not rules, and your contract controls. If you are buying in Virginia, the simplest next step is to talk with Duane Buziak before you make an offer, so the amount, the source, and the timing of your deposit all line up with your loan file.
Earnest Money Deposit FAQ for FHA Buyers
Is earnest money refundable?
It can be, if you cancel under a valid contingency within its deadline. If you default or miss the deadlines, the seller may be entitled to keep it. Your contract’s terms control.
Who holds the earnest money?
A neutral third party, typically a title company, closing attorney, or a brokerage’s escrow account. It is not paid directly to the seller.
How much is earnest money?
FHA sets no required amount. It is negotiated in the contract and often follows local custom as a share of the price, so ask your agent what is typical in your market.
Is earnest money part of the down payment?
Yes, in effect. It is credited at closing toward your down payment or closing costs, so it reduces the cash you bring at the table.
Can gift funds be used for earnest money?
Gift funds can be used when they come from an acceptable donor and are supported by a signed gift letter. Arrange the documentation before the funds are deposited so the file is clean.
What happens if the appraisal is low?
On an FHA purchase, the Amendatory Clause lets you withdraw without losing your earnest money if the appraised value is below the purchase price. You may also renegotiate or proceed by paying the difference.
How long do I have to deposit it?
The contract sets the deadline, commonly a few business days after acceptance. Missing it can put you in default, so confirm the date as soon as you sign.
Can the seller keep it if I can’t get a loan?
If your contract has a financing contingency and you act within its deadline and in good faith, you can usually recover it. Without that protection, or after it expires, the seller may have a claim. FHA’s minimum of 3.5% down with a 580 or higher credit score is published at hud.gov, and a pre-approval before you make an offer reduces the risk of a financing surprise.
Earnest Money Is a Credited Commitment: Document It Before You Offer
Your deposit is not a fee. It is escrow-held money that returns to you as a credit at closing, and it is safest when your contingency deadlines are met and your FHA Amendatory Clause is in the contract. The part you control most is the paper trail: use your own account, keep the receipt, and have your gift letter ready if a relative is helping.
As a broker with access to hundreds of wholesale lenders, Duane Buziak can run a Dare to Compare pricing challenge against whatever you have been quoted, and the NoTouch Credit Pull means checking your credit does not cost you a hard inquiry. He can also discuss no-out-of-pocket closing options where they fit your situation.
Ready to take the first step toward homeownership with an FHA loan tailored to your needs? Schedule your free consultation today and discover how our award-winning team can help you navigate the path to your new home with competitive rates and expert guidance. Call 804-212-8663 to get started with FHA Mortgages by Duane Buziak before you write that deposit check.
