When you make an offer on a home, you’ll usually include earnest money – a deposit that shows the seller you’re a serious buyer. This good-faith payment, typically 1% to 3% of the purchase price, is held in escrow and applied to your down payment or closing costs if the sale goes through. That means if the sale is completed, the money is not refunded – it’s credited toward what you owe. But what about if your deal falls through, is the earnest money refundable then?
Short answer: Yes, earnest money is often refundable, but only if specific conditions in your contract are met.
Whether you get it back depends on the terms of your purchase agreement, the contingencies included, and why the deal didn’t close. This Redfin article will walk you through when earnest money is refundable, when it’s not, and answer important questions you may have about earnest money.
When is earnest money refundable?
Earnest money is generally refundable if the buyer backs out of the deal for a reason protected by the purchase agreement. These protections usually come in the form of contingencies, which are clauses that allow you to walk away from the sale without penalty if certain conditions aren’t met.
Here’s when a buyer can usually expect to get their earnest money refunded:
Home inspection uncovers major issues
If the offer includes a home inspection contingency and the inspection reveals serious problems, like foundation damage, mold, or an outdated electrical system, the buyer can back out of the deal during the inspection period and get their earnest money refunded.
Buyer is unable to secure financing
A financing or mortgage contingency protects buyers if they’re unable to get approved for a home loan. Even with pre-approval, unexpected financial changes or lender decisions can prevent final approval. If this happens and they’ve included the right contingency, the buyer can usually walk away with their earnest money deposit.
The home appraises…