Key takeaways:
If you’re buying a home in Texas, you’ve probably heard the term earnest money, the deposit that shows a seller you’re serious about your offer. In most cases, earnest money in Texas ranges from 1% to 3% of the home’s purchase price, but the exact amount can vary depending on market conditions and your agreement with the seller. According to the Texas Real Estate Commission (TREC), buyers must deliver their earnest money to an escrow agent within the time frame listed in the contract; if the money isn’t delivered on time, the seller can terminate the deal or pursue remedies outlined in Paragraph 15 of the TREC contract.
In real estate, a contract is only binding if there’s “consideration,” meaning both sides are offering something of value. In this case, the buyer’s promise to buy and the seller’s promise to sell fulfill that requirement. Because earnest money plays such a key role in this exchange, understanding how much to put down and when to deliver it can help you avoid delays or even losing out on your dream home.
What is earnest money?
Earnest money is a good-faith deposit that buyers include with their offer to show they’re serious about purchasing a home. It acts as a sign of commitment and gives the seller confidence that the buyer won’t back out without reason.
Once the offer is accepted, the earnest money is typically held in an escrow account managed by a title company or brokerage until closing. If the sale is completed, the deposit is applied toward the buyer’s down payment or closing costs. If the deal falls through for a reason covered by the contract, such as a failed inspection or financing contingency, the buyer may get their deposit back.
When is earnest money delivered?
In Texas, earnest money is typically due within three business days after the contract is signed; however, the exact deadline depends on the terms outlined in your purchase agreement. According to the Texas Real Estate Commission (TREC), the buyer must deliver the earnest money to the escrow agent or title company listed in the contract. If the deposit isn’t delivered on time, the seller has the right to terminate the agreement or pursue other remedies. Buyers usually submit earnest money via wire transfer, check, or money order to the title company.
For example, if your offer is accepted on a Friday, you’ll generally need to deliver your earnest money by the following Wednesday to stay compliant with the contract terms.
How much do you give for earnest money?
Most buyers in Texas put down between 1% and 3% of the home’s purchase price as earnest money. For example, if you’re buying a $400,000 home, your deposit might range from $4,000 to $12,000. In a competitive market, you might offer a larger amount to stand out among other buyers; in a slower market, a smaller deposit may still be acceptable. The right amount depends on local norms, the property’s demand, and your comfort level.
Is earnest money refundable?
Yes, earnest money can be refundable in certain situations, depending on the terms outlined in your purchase contract. In Texas, most real estate contracts include specific contingencies, conditions that must be met for the sale to move forward. If one of these contingencies isn’t satisfied, the buyer may be entitled to a refund of their earnest money.
Common refundable situations include:
Financing contingency: If you’re unable to secure mortgage approval within the agreed timeframe, you can typically cancel the contract and have your earnest money returned.
Inspection contingency: If a home inspection reveals significant issues and you decide to withdraw your offer within the allowed period, your deposit is usually refundable.
Appraisal contingency: If the home appraises for less than the purchase price and you can’t reach a new agreement with the seller, you may cancel and recover your deposit.
Title or seller default: If title issues arise or the seller fails to meet their obligations, buyers can often terminate the contract and get their earnest money back.
It’s important to read your contract carefully and work closely with your real estate agent or attorney to understand your rights. Once all contingencies are met and the sale moves forward, the earnest money becomes nonrefundable and is applied toward your closing costs or down payment.
When is earnest money nonrefundable?
Earnest money becomes nonrefundable once all contract contingencies have been met and both parties are moving forward toward closing. At this point, the deposit shows your commitment to the purchase; backing out without a valid reason could cause you to lose that money.
In Texas, your earnest money may become nonrefundable in the following situations:
You miss a deadline. If you fail to meet important timelines, such as inspection or financing deadlines, your right to a refund may expire.
You change your mind after contingencies are cleared. Once inspections, appraisals, and financing are approved, withdrawing your offer can forfeit your deposit.
You default on the contract. If you breach the terms of the agreement, for example, by failing to close on time without cause, the seller may keep the earnest money as compensation.
You waive contingencies. If you remove standard protections like inspection or financing contingencies to strengthen your offer, you also give up the right to recover your deposit if the deal falls through.
At this stage of the transaction, earnest money becomes part of your financial commitment to the home purchase. Before signing, make sure you understand every clause in your contract and consult your real estate agent or attorney if anything is unclear.
How to protect your earnest money in Texas
Because earnest money represents a significant financial commitment, it’s important to take steps to safeguard it throughout the homebuying process. In Texas, buyers can protect their deposit by following these best practices:
Work with a licensed real estate agent. An experienced agent can ensure all contract terms, deadlines, and contingencies are clearly outlined and followed.
Verify the escrow agent or title company. Only deliver earnest money to a reputable and licensed escrow holder listed in the contract; never send funds directly to a seller or agent.
Pay by a traceable method. Use a wire transfer, certified check, or money order so there’s a clear record of payment and receipt.
Understand your contingencies. Review each contingency clause carefully, and make sure you know how and when to exercise your right to cancel if something goes wrong.
Get everything in writing. Always confirm changes, extensions, or releases of earnest money in writing and signed by both parties.
By following these precautions, you’ll reduce the risk of disputes and protect your investment from potential loss. A clear understanding of the Texas Real Estate Commission (TREC) rules and your contract terms helps ensure your earnest money remains secure until closing.
FAQs about earnest money in Texas
Who holds the earnest money in Texas?Earnest money in Texas is typically held by a title company or escrow agent named in the purchase contract. They keep the funds in a secure escrow account until closing or until the contract is terminated according to its terms.
Can you lose your earnest money?Yes, you can lose your earnest money if you default on the contract, miss key deadlines, or back out of the purchase after all contingencies have been cleared. Once those protections expire, the seller may keep the deposit as compensation for taking the home off the market.
Does earnest money come off the purchase price?Yes, in most cases, earnest money is applied toward the home’s purchase price at closing. The deposit typically goes toward your down payment or closing costs, reducing the total amount you’ll need to bring to the closing table. Think of it as an early payment that shows the seller you’re serious about buying. The money remains in an escrow account until the sale is finalized; once the deal closes, it’s credited back to you as part of your total home purchase. However, if the transaction falls through for a reason not covered by your contract, the seller may be entitled to keep the earnest money as compensation for lost time or opportunity.
What to remember about earnest money deposits
Earnest money plays a key role in every Texas home purchase; it shows your commitment and helps the seller feel confident moving forward. While it’s usually refundable under specific conditions, understanding when it becomes nonrefundable and how to protect it is crucial. By working with a licensed real estate agent, reviewing your TREC contract carefully, and meeting all deadlines, you can make sure your deposit stays secure and goes toward your dream home when it’s time to close.
