Earnest Money Calculator
Use this calculator to determine the required earnest money deposit for a real estate transaction based on the property's purchase price and a specified percentage.
Earnest money is a deposit made to a seller by a buyer in real estate transactions as proof of good faith.
Calculate Earnest Money
Understanding Earnest Money
Earnest money, sometimes called a good faith deposit, is a sum of money a buyer puts down to demonstrate their seriousness about purchasing a property. It's typically held in an escrow account until the closing of the transaction.
The amount is often a percentage of the purchase price, commonly ranging from 1% to 5%, though it can vary based on local customs and market conditions.
If the sale goes through, the earnest money is usually applied towards the buyer's down payment or closing costs. If the sale fails due to reasons outlined in the purchase agreement (like financing falling through or a negative inspection report), the buyer typically gets their earnest money back. However, if the buyer backs out for reasons not protected by contingencies in the contract, they may lose the earnest money to the seller.
Earnest Money Examples
Click on an example to see the calculation:
Example 1: Standard 1% Deposit
Scenario: Buying a home for $300,000 with a 1% earnest money deposit.
1. Known Values: Purchase Price = $300,000, Earnest Money Percentage = 1%.
2. Calculation: Earnest Money = $300,000 * (1 / 100)
3. Result: $3,000.
Conclusion: The earnest money required is $3,000.
Example 2: Common 3% Deposit
Scenario: Purchasing a property at $550,000 with a 3% earnest money deposit.
1. Known Values: Purchase Price = $550,000, Earnest Money Percentage = 3%.
2. Calculation: Earnest Money = $550,000 * (3 / 100)
3. Result: $16,500.
Conclusion: The earnest money required is $16,500.
Example 3: 2.5% for a Mid-Range Home
Scenario: A buyer offers $425,000 for a house and agrees to a 2.5% earnest money deposit.
1. Known Values: Purchase Price = $425,000, Earnest Money Percentage = 2.5%.
2. Calculation: Earnest Money = $425,000 * (2.5 / 100)
3. Result: $10,625.
Conclusion: The earnest money required is $10,625.
Example 4: Higher 5% in a Hot Market
Scenario: In a competitive market, a buyer puts down 5% earnest money on a $650,000 property.
1. Known Values: Purchase Price = $650,000, Earnest Money Percentage = 5%.
2. Calculation: Earnest Money = $650,000 * (5 / 100)
3. Result: $32,500.
Conclusion: The earnest money required is $32,500.
Example 5: Lower 0.5% Deposit
Scenario: A buyer is asked for a 0.5% earnest money deposit on a $280,000 condo.
1. Known Values: Purchase Price = $280,000, Earnest Money Percentage = 0.5%.
2. Calculation: Earnest Money = $280,000 * (0.5 / 100)
3. Result: $1,400.
Conclusion: The earnest money required is $1,400.
Example 6: Luxury Home 2% Deposit
Scenario: Purchasing a luxury property for $1,200,000 with a 2% earnest money deposit.
1. Known Values: Purchase Price = $1,200,000, Earnest Money Percentage = 2%.
2. Calculation: Earnest Money = $1,200,000 * (2 / 100)
3. Result: $24,000.
Conclusion: The earnest money required is $24,000.
Example 7: Minimal Deposit (0%)
Scenario: In rare cases, a zero percent earnest money deposit might be negotiated (e.g., off-market sale). Price $100,000, Percentage 0%.
1. Known Values: Purchase Price = $100,000, Earnest Money Percentage = 0%.
2. Calculation: Earnest Money = $100,000 * (0 / 100)
3. Result: $0.
Conclusion: No earnest money is required in this specific, unusual case.
Example 8: Foreclosure Property 1%
Scenario: Buying a foreclosure for $150,000 with a standard 1% earnest money requirement.
1. Known Values: Purchase Price = $150,000, Earnest Money Percentage = 1%.
2. Calculation: Earnest Money = $150,000 * (1 / 100)
3. Result: $1,500.
Conclusion: The earnest money required is $1,500.
Example 9: New Construction 2%
Scenario: A new construction home costs $480,000 with the builder requiring 2% earnest money.
1. Known Values: Purchase Price = $480,000, Earnest Money Percentage = 2%.
2. Calculation: Earnest Money = $480,000 * (2 / 100)
3. Result: $9,600.
Conclusion: The earnest money required is $9,600.
Example 10: Commercial Property 4%
Scenario: Purchasing a commercial property for $900,000 with a 4% earnest money deposit common for commercial transactions.
1. Known Values: Purchase Price = $900,000, Earnest Money Percentage = 4%.
2. Calculation: Earnest Money = $900,000 * (4 / 100)
3. Result: $36,000.
Conclusion: The earnest money required is $36,000.
Frequently Asked Questions about Earnest Money
1. What is earnest money?
Earnest money is a deposit a buyer makes to show the seller they are serious and acting in "good faith" to purchase the property. It's part of the offer to purchase.
2. Is earnest money required?
It is not legally required in all places or for all transactions, but it is a standard practice in most real estate deals and expected by sellers as a sign of a serious buyer.
3. How much earnest money is typical?
The typical amount varies but is commonly 1% to 3% of the purchase price. In competitive markets or for higher-priced properties, it might be 5% or even higher.
4. Who holds the earnest money?
It is usually held in an escrow account by a neutral third party, such as an escrow company, title company, real estate brokerage, or attorney, until the closing.
5. What happens to the earnest money at closing?
If the sale successfully closes, the earnest money is typically credited back to the buyer to help cover their down payment or closing costs.
6. Can a buyer lose their earnest money?
Yes, a buyer can lose their earnest money if they back out of the deal for a reason *not* covered by the contingencies outlined in the purchase agreement (e.g., simply changing their mind without cause).
7. When can a buyer get their earnest money back?
A buyer can typically get their earnest money back if the contract is terminated due to a contingency not being met, such as failing to secure financing, a negative home inspection report, or the property not appraising for the purchase price.
8. What are contingencies?
Contingencies are conditions written into the purchase agreement that must be met for the sale to proceed. Common ones include financing contingency, inspection contingency, and appraisal contingency.
9. Is earnest money the same as a down payment?
No, they are different. Earnest money is a deposit to show good faith *before* the sale is complete. A down payment is a larger sum paid at closing as part of the purchase price. The earnest money is usually applied towards the down payment at closing.
10. Does the earnest money percentage affect my loan?
The percentage itself doesn't directly affect your loan terms, but the total earnest money amount will be part of the funds you need to show are available for the transaction (as it reduces the amount needed at closing).
