earnest money
A deposit made by a buyer to demonstrate serious intent to purchase a property, typically 1-3% of the purchase price, applied toward the down payment at closing.
Example
“She submitted $10,000 in earnest money with her offer to show the seller she was a serious buyer.”
Memory Tip
EARNEST money = you're EARNEST (serious). A deposit to prove you mean business.
Why It Matters
Earnest money shows sellers that you are a serious buyer and not just casually shopping around. This deposit demonstrates financial commitment and can help your offer stand out in competitive real estate markets where multiple buyers are bidding on the same property.
Common Misconception
Many people think earnest money is extra money they lose if the deal falls through, but this is incorrect. The earnest money is actually credited toward your down payment at closing, and you can get it back if the sale fails due to legitimate reasons like a failed home inspection or appraisal.
In Practice
When you make an offer on a house listed for $300,000, you might deposit $6,000 as earnest money, which represents 2 percent of the purchase price. At closing, if you are putting down 20 percent or $60,000, that $6,000 earnest money deposit is subtracted from the total down payment you owe, reducing it to $54,000.
Etymology
EARNEST (serious, sincere intent) MONEY. From Old French 'erres' (pledge). Money proving you are EARNEST (serious).
Common Misspellings
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