Is earnest money required on a conventional loan?
Fannie Mae does not require earnest money. The deposit is a term of your purchase contract between you and the seller. If you do put down a deposit, the lender will usually verify it, and it is credited toward your cash to close.
Educational answer from Mortgage Expert. Mortgage Expert's licensed loan originator is Shahram Sondi, Florida mortgage broker, Certified Mortgage Advisor™, NMLS 186790. Sources checked .
How it works
Who sets the deposit
Earnest money is a good-faith deposit you make when your offer is accepted. Your contract sets the amount, the deadline and who holds it, often a title company or an escrow agent. It also says when you could lose it, so read those terms with your agent.
The loan program does not set a minimum. A larger deposit can make an offer look stronger, but it also puts more of your money at risk if you back out for a reason the contract does not allow.
How the lender checks it
The lender verifies that the deposit was paid. It can use a copy of your canceled check or a written statement from whoever holds the deposit.
When the deposit counts toward money you must put in yourself, the lender also checks where it came from. Your bank statements should show that your average balance over the past two months was large enough to cover it. If a canceled check is used, the statements must run through the date it cleared.
Fannie Mae says large deposits, or amounts above what is customary for the area, should be closely evaluated.
Where it shows up at closing
Your deposit is not an extra cost. On your Loan Estimate and Closing Disclosure, it is subtracted when the lender figures your cash to close. In effect, it is part of your down payment and costs, paid early.
A $10,000 deposit on a $350,000 home
Illustrative example. This is not a real borrower, contract or loan offer. Contract terms and lender rules decide the real numbers.
A buyer signs a contract on a $350,000 home with 5% down and puts down a $10,000 deposit. The buyer's checking balance was $14,000 at the end of one month and $16,000 at the end of the next. Closing costs are left out to keep the math simple.
The math, step by step
- Down payment: $350,000 × 5% = $17,500.
- Down payment still due at closing after the deposit credit: $17,500 − $10,000 = $7,500.
- Two-month average balance: ($14,000 + $16,000) ÷ 2 = $15,000. That is more than the $10,000 deposit, so the balance supports it.
Takeaway: The $10,000 deposit is not lost money. It reduces what this buyer brings to closing, so only $7,500 of the down payment is still due, plus closing costs.
Easy things to get wrong
- Pay the deposit from your own account by check or wire. Cash is hard to trace.
- Keep the receipt from the title or escrow company and the bank statement showing the money left your account.
- Before you wire, call the title company at a number you already trust to confirm the instructions. Wire fraud targets home buyers.
- If a relative helps with the deposit, tell the lender. It may need a gift letter and proof of the transfer.
What to do next
Before you sign, check your contract's deposit amount and deadline. Make sure the money is in an account with two months of statements you can share.
Deciding how much to put down as a deposit? Shahram Sondi can show how it fits into your cash to close and what the lender will ask for.
Check the sources
- Fannie Mae Selling Guide B3-4.3-09: earnest money deposit
- Fannie Mae Selling Guide B3-4.2-02: depository accounts
- CFPB: Closing Disclosure explainer (Cash to Close)
Sources checked . Program guidance and lender requirements can change.
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Educational only. Conventional loan guidelines, lender overlays, rates, fees, PMI, LLPAs, and underwriting requirements can change. Final eligibility depends on full underwriting review. Mortgage Expert, Inc. is not affiliated with Fannie Mae, Freddie Mac, FHFA, or any government agency.
