What we verified in “Earnest money deposit: how it works and how to protect it”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. According to the CFPB, earnest money is a deposit a buyer pays to show good faith on a signed contract to buy a home; it is held by the seller or a third party such as a real estate agent or title company; if the sale closes, it may be applied to closing costs or the down payment; if the contract is terminated for a permissible reason, it is returned to the buyer; and if the buyer does not perform in good faith, it may be forfeited and paid to the seller.

   Sources 1 · Mortgage key terms, 'Earnest money': 'a deposit a buyer pays to show good faith on a signed contract agreement to buy a home'; 'held by a seller or third party like a real estate agent or title company'; 'may be applied to closing costs or the down payment'; 'If the contract is terminated for a permissible reason, the earnest money is returned to the buyer'; 'may be forfeited and paid out to the seller' · Checked October 31, 2026

2. According to the CFPB, the Estimated Cash to Close on the Loan Estimate includes your down payment and closing costs, minus any deposit you have already paid to the seller, any amount the seller agreed to pay toward your closing costs and other adjustments.

   Sources 2 · Loan Estimate Explainer, 'Estimated Cash to Close': 'includes your down payment and closing costs, minus any deposit you have already paid to the seller, any amount the seller has agreed to pay toward your closing costs (seller credits), and other adjustments' · Checked October 31, 2026

3. According to the CFPB, if the inspection finds needed repairs you can negotiate with the seller over who makes or pays for them, and the seller may or may not agree; and if your purchase contract is contingent on a satisfactory inspection, you have the right to cancel the sale without penalty if you are not satisfied with the results.

   Sources 3 · Schedule a home inspection: 'you may want to negotiate with the seller about who should make or pay for the repairs'; 'the seller may or may not agree'; 'If your purchase contract is contingent on a satisfactory inspection, you have the right to cancel the sale without penalty if you are not satisfied with the results of the inspection' · Checked October 31, 2026

4. According to FHA, a home inspection only happens if you arrange one, because FHA does not inspect homes; and if you request one early in the process, you may be able to make your purchase contract contingent on its results.

   Sources 4 · Form HUD-92564-CN, For Your Protection: Get a Home Inspection: 'A home inspection will only occur if you arrange for one; FHA does not perform home inspections'; 'If you request an inspection early in the process, you may be able to make your purchase contract contingent on its results' · Checked October 31, 2026

5. According to HUD Handbook 4000.1, on an FHA loan, if you did not receive the statement of appraised value (form HUD-92800.5B) before signing the contract, the contract must be amended before closing with a clause saying you are not obligated to complete the purchase or incur any penalty by forfeiting your deposit unless you receive a written statement of appraised value of at least the contract price; that you may proceed anyway if you choose; and that HUD does not warrant the home's value or condition. It is not required in certain sales, such as HUD-owned homes, the 203(k) program or when the seller is a government agency.

   Sources 5 · Handbook 4000.1 (last revised August 12, 2026), II.A.1, '(i) Amendatory Clause', p. 136–137: 'the sales contract must be amended before closing to include an amendatory clause'; 'the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise'; 'The purchaser shall have the privilege and option of proceeding'; 'HUD does not warrant the value or condition of the property'; 'An amendatory clause is not required in connection with: HUD REO sales; FHA’s 203(k) mortgage program' · Checked October 31, 2026

6. According to HUD Handbook 4000.1, on an FHA loan the lender must verify and document the deposit amount and source if it exceeds 1 percent of the sales price or is excessive given your history of saving, using your canceled check, a certification from the deposit holder, a statement showing your average balance was enough, or electronic verification; and if the deposit came from a gift, the gift must meet the gift rules.

   Sources 5 · Handbook 4000.1, Asset Requirements (TOTAL), '(A) Earnest Money Deposit (TOTAL)', p. 250: 'if the amount of the earnest money deposit exceeds 1 percent of the sales price or is excessive based on the Borrower’s history of accumulating savings'; 'a copy of the Borrower’s canceled check'; 'certification from the deposit-holder acknowledging receipt of funds'; 'If the source of the earnest money deposit was a Gift' · Checked October 31, 2026

7. According to VA, if the papers are signed before the Notice of Value is received, the VA Escape Clause lets the buyer back out without penalty if the negotiated price is higher than the reasonable value VA sets, without losing the earnest money; the buyer may also proceed, with the loan capped at the lesser of the price or the reasonable value; deposits to a builder for upgrades on new construction are not earnest money and are not covered; the title company or other entity holding the funds must follow the contract and return the deposit; and VA cannot intervene in civil disputes or give legal advice.

   Sources 6 · VA Escape Clause: 'allows the buyer to back out of the purchase without penalty if the property's negotiated price is higher than the "reasonable value" determined by VA'; 'the buyer will not lose their earnest money deposit'; 'the loan amount would be capped at the lesser of'; 'deposits to the builder for upgrades for new construction are not considered earnest money'; 'the title company or other entities holding the escrow funds must follow the contract terms and return the deposit'; 'VA cannot intervene in civil disputes or provide legal advice' · Checked October 31, 2026

8. According to Fannie Mae, the sales contract deposit is an acceptable source for both the down payment and closing costs; if it counts toward your minimum contribution, the lender verifies the funds came from an acceptable source and that your average balance over the past two months was large enough to cover it; large deposits, or ones above what is customary in the area, are closely evaluated; and receipt is verified with your canceled check or a written statement from the deposit holder.

   Sources 7 · Selling Guide B3-4.3-09, Earnest Money Deposit: 'an acceptable source of funds for both the down payment and the closing costs'; 'the average balance for the past two months was large enough to support the amount of the deposit'; 'Large earnest money deposits and deposits that exceed the amount customary for the area should be closely evaluated'; 'Receipt of the deposit must be verified by either a copy of the borrower’s canceled check or a written statement from the holder of the deposit' · Checked October 31, 2026

9. The CFPB warns that scammers try to divert your closing costs and down payment into a fraudulent account by confirming or suggesting last-minute changes to your wiring instructions, posing as your agent or settlement agent; it recommends identifying two trusted people to confirm the process, never following instructions contained in an email and verifying the account name and number in person or by the phone number you agreed on earlier; and if it happens, contacting your bank or wire company immediately to ask for a wire recall and filing a complaint with the FBI at ic3.gov.

   Sources 8 · Mortgage closing scams: How to protect yourself and your closing funds: 'divert your closing costs and down payment into a fraudulent account by confirming or suggesting last-minute changes to your wiring instructions'; 'Identify two trusted individuals'; 'Never follow instructions contained in an email'; 'including the account name and number'; 'using the phone number you previously agreed to'; 'Contact your bank or wire-transfer company immediately. Ask for a wire recall'; 'www.ic3.gov' · Checked October 31, 2026

10. According to the CFPB, the counseling agencies in its search tool are approved by HUD and offer independent advice, often at little or no cost, on buying a home, renting, defaults, forbearances, foreclosures and credit; you search by ZIP code; and not every agency offers every service.

    Sources 9 · Find a Housing Counselor: 'approved by the U.S. Department of Housing and Urban Development (HUD)'; 'offer independent advice, often at little or no cost to you'; 'buying a home, renting, defaults, forbearances, foreclosures, and credit issues'; 'Search by ZIP code'; 'Not every housing counselor offers all services' · Checked October 31, 2026