Earnest money is the check or wire a buyer sends after the seller accepts an offer. It tells the seller you're committed. Florida purchase contracts usually call it the escrow deposit, and a title company, closing attorney or real estate broker holds it in an escrow account until closing.
At closing, the deposit becomes part of your payment. It shows up on your Closing Disclosure as a credit, so every dollar of earnest money is a dollar you don't bring on closing day.
How the lender checks your deposit
The deposit leaves your account weeks before closing, so the lender has to confirm it came from money you're allowed to use.
FHA requires the lender to verify the source of the deposit when it's more than 1% of the sales price, or when it looks large compared with how you've saved in the past. Typical proof is the canceled check or wire receipt and the bank statement it came out of.
Conventional loans following Fannie Mae verify receipt with a copy of your canceled check or a written statement from whoever holds the deposit. If the deposit is part of your required down payment, the lender also confirms it came from an acceptable source, such as your own bank account, with statements that show the money was there.
Pay the deposit from an account in your name, by check or wire. Cash dropped at the title company is hard to document and slows the loan down.
A $320,000 purchase, start to finish
A buyer signs a contract at $320,000 with FHA financing and puts down a $5,000 escrow deposit.
- FHA's 1% line: 1% of $320,000 = $3,200
- The $5,000 deposit is above that line, so the lender asks for the bank statement showing the $5,000 leaving the buyer's account and a receipt from the title company.
Later, the buyer's total cash needed comes to $14,800 for the down payment, closing costs and prepaids, after the seller credit. The deposit counts against that number:
- Total cash needed: $14,800
- Earnest money already paid: $5,000
- Cash to bring on closing day: $14,800 minus $5,000 = $9,800
Protecting your deposit
The contract decides when you can cancel and get the deposit back. Financing, inspection and appraisal contingencies are the usual protections. FHA purchases also carry an amendatory clause that lets the buyer walk away without losing the deposit if the home appraises below the price. VA purchases have a similar clause.
Mark the contract deadlines on your calendar the day you sign. Most deposit disputes trace back to a missed date, such as an inspection period that ran out before the buyer asked to cancel.
Plug the deposit into the cash to close calculator to see the check you'll write at closing. To size a deposit that a seller will take seriously and your bank statements can support, call AAA Capital Funding at 888-601-8344 before you sign.