Transaction Coordination

Earnest Money vs Down Payment: The Difference and How Each Is Credited

Earnest money is a good-faith deposit paid days after acceptance; the down payment is the part of the price you don't borrow, paid at closing. How the deposit is credited, program minimums, and what lenders check.

Ijharul Islam October 30, 2026 9 min read

Earnest money vs down payment, in short: earnest money is a good-faith deposit paid within days of an accepted offer and held in escrow. The down payment is the part of the price the buyer pays at closing instead of borrowing. At closing, the earnest money is credited to the buyer, usually toward the down payment and closing costs.

More on this topic: Contract to close: process and checklists, every guide in one place.

So earnest money isn't an extra cost on top of the down payment; it's an early piece of the buyer's money that's at risk if the buyer defaults. Below we compare the two, show how the deposit is credited, give the minimum down payments from the agencies' own rules, and list what lenders verify. Deadlines are in earnest money deadlines and failed deals in what happens in an earnest money dispute.

Key takeaways

Earnest money is paid early and held in escrow; the down payment is paid at closing.
At closing the deposit is subtracted from what the buyer brings. Fannie Mae counts it as an acceptable source for both the down payment and closing costs.
The Texas resale contract applies earnest money first to the cash down payment, then to the buyer's expenses, and refunds any excess.
Minimum down payments come from the loan program: 3.5% of appraised value for FHA, as little as 3% with Fannie Mae HomeReady, and often none for a VA loan.
No law sets a standard earnest money amount; it's negotiated, and lenders look closely at deposits above what's customary locally.

What is the difference between earnest money and a down payment?

	Earnest money	Down payment
What it is	A good-faith deposit showing the buyer is serious	The share of the price not financed by the loan
When it's paid	Within the contract's deadline, often a few days after acceptance	At closing
Who holds it	The escrow holder named in the contract	Paid to the closing agent with the rest of the cash to close
Who sets the amount	The buyer and seller, in the contract	The price, the loan amount and the loan program's minimum
If the deal fails	Refunded or released under the contract's terms	Not paid yet, so nothing to lose
On the Closing Disclosure	Subtracted as the Deposit line	Added as Down Payment/Funds from Borrower

In a cash purchase there's no loan, so there's no down payment in the lending sense. The earnest money is still credited to the buyer at closing.

What is earnest money?

Earnest money (also called a good-faith or escrow deposit) is money the buyer puts up after the seller accepts, to show the buyer means to close. The contract sets the amount, the escrow holder, the deadline and any additional deposit later in the deal. The Texas resale contract, for example, gives the buyer 3 days after the Effective Date to deliver it to the named escrow agent and has a blank for additional earnest money due by a later date (TREC 20-19, Paragraph 5A).

Don't confuse it with an option fee. In Texas the option fee buys the unrestricted right to terminate during the option period; it's paid to the escrow agent, released to the seller, and credited to the sales price at closing. If the buyer terminates in time, the option fee isn't refunded but the earnest money is (Paragraphs 5A(4) and 5B). Our Texas option period guide has the details.

What is a down payment, and how much do you need?

The down payment is the purchase price minus the loan amount. Its minimum comes from the loan program, not the contract:

Program	Minimum down payment	Source
FHA-insured	At least 3.5% of the appraised value, paid in cash or its equivalent	12 U.S.C. § 1709(b)(9)
Fannie Mae HomeReady (one-unit principal residence)	As little as 3%: maximum LTV 97% with DU underwriting (95% if manually underwritten)	Fannie Mae Selling Guide B5-6-02
VA-backed purchase loan	Often none, as long as the price isn't higher than the appraised value	VA.gov

Lenders can require more than the minimum, and other programs and loan types have their own rules, so the buyer's loan estimate is the real answer. The Loan Estimate and Closing Disclosure show the down payment on its own line in the Calculating Cash to Close table.

Is earnest money part of the down payment?

It counts toward it. Fannie Mae's Selling Guide says the earnest money deposit on the purchase contract is an acceptable source of funds for both the down payment and closing costs. The Texas resale contract spells out the order: at closing, the earnest money is applied first to any cash down payment, then to the buyer's expenses, and any excess is refunded to the buyer (TREC 20-19, Paragraph 18B).

That last part matters for low or zero down payment loans. If the deposit is larger than the cash the buyer owes at closing, the extra comes back to the buyer rather than disappearing.

How is earnest money credited at closing?

On the Closing Disclosure, the deposit appears in the Calculating Cash to Close table, where Regulation Z lists the Down Payment/Funds from Borrower line and a separate Deposit line that's subtracted (12 CFR 1026.37(h)). The Summaries of Transactions section on page 3 shows the same deposit among the amounts already paid by or on behalf of the borrower.

A hypothetical example with round numbers: a $350,000 purchase with a $332,500 FHA loan (a $17,500 down payment) and $5,000 earnest money. The buyer's cash for the down payment at closing is $12,500, because the $5,000 already paid is credited. Closing costs and credits then move the final cash to close; the full calculation is in cash to close vs closing costs. To size a deposit as a percentage of price, use the free earnest money calculator.

How much earnest money is typical?

There's no national standard, and we haven't found a primary source that publishes a typical percentage, so we don't quote one. The amount is negotiated: sellers in competitive markets may expect more, and the buyer's risk grows with the deposit if they default outside a contingency.

Lenders do pay attention to the size. Fannie Mae tells lenders that large earnest money deposits, and deposits that exceed the amount customary for the area, should be closely evaluated. Ask the listing agent or the escrow officer what's usual locally, and check the deposit and additional-deposit blanks in your state's contract.

Can you lose earnest money or a down payment?

Earnest money is the one at risk before closing. A buyer who terminates properly under a contingency, on time, can generally expect it back under the contract; a buyer who defaults outside one may lose it. The escrow holder usually needs both parties' signed release, a court order or a process state law provides before releasing disputed funds. See what happens in an earnest money dispute.

The down payment isn't paid until closing, so it isn't exposed to the deal falling through. After closing it becomes equity in the home rather than a deposit.

What do lenders verify about earnest money?

When the deposit counts toward the borrower's required contribution, Fannie Mae requires the lender to verify that the funds came from an acceptable source. Its Selling Guide lists two ways to verify receipt: a copy of the borrower's canceled check, or a written statement from the holder of the deposit. Bank statements should also show that the average balance for the past two months could support the deposit.

In practice that means the buyer should pay from their own documented account, keep the receipt, and not move large unexplained sums around before closing. A TC can collect the escrow receipt on day one and send it to both the lender and the listing side.

What a transaction coordinator tracks for both

The earnest money amount, holder and deadline, including any additional deposit and its own deadline.
The holder's written receipt, sent to the lender and the other agent.
That the Deposit line on the Closing Disclosure matches the receipts, including any additional deposit.
That the buyer knows the exact cash to close and how to pay it; the CFPB says a cashier's check or wire is typical.
That wiring instructions come only from the closing agent and are confirmed by phone. See the wire fraud checklist.

Frequently asked questions

Do you get your earnest money back at closing?

Not as a separate refund. It's credited toward what you owe, and under the Texas resale contract any amount left after the down payment and your expenses is refunded to you.

Does earnest money count toward closing costs?

Yes. Fannie Mae treats the deposit as an acceptable source of funds for both the down payment and closing costs, and the Texas contract applies it to the buyer's expenses after the down payment.

What happens to earnest money with a zero down payment loan?

It's still credited to the buyer. If there's no down payment to apply it to, it goes toward closing costs, and any excess is refunded, depending on the contract and the lender's rules.

Is the option fee part of the earnest money in Texas?

No. It's a separate payment for the termination option, credited to the sales price at closing and not refunded if the buyer terminates during the option period.

When is the down payment due?

At closing, as part of the cash to close paid to the closing agent. Ask the closing agent how they accept funds, and confirm wiring instructions by phone before sending.

Where does earnest money show on the Closing Disclosure?

As the Deposit line in the Calculating Cash to Close table on page 3, where it reduces the cash you bring, and among the amounts already paid in the Summaries of Transactions.

Never lose track of a deposit

Closingbird adds the earnest money deadline from the executed contract, counted in business days when the contract says so, and document requests collect the escrow receipt with up to three automatic reminders. Closingbird never sends wiring instructions. Start a free trial (14-day free trial, no credit card required) or see pricing.

Sources

Checked in October 2026. Rules and prices change, and many vary by state, so confirm with the source, your state's real estate commission or your broker before you rely on them.

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