1. What is Earnest Money?

Earnest money is a deposit made to a seller showing the buyer's good faith in a transaction. It's typically held in escrow until closing and then applied to the buyer's down payment or closing costs.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Offer Price \) — The purchase price of the home in USD
• \( Percentage \) — The percentage of offer price required as earnest money (typically 1-3%)

Explanation: The calculation multiplies the offer price by the percentage (in decimal form) to determine the earnest money amount.

3. Importance of Earnest Money

Details: Earnest money demonstrates the buyer's commitment to the purchase and provides the seller some protection if the buyer backs out without valid reason. The amount varies by market but typically ranges from 1-3% of the purchase price.

4. Using the Calculator

Tips: Enter the offer price in USD and the percentage as a decimal (e.g., 0.02 for 2%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much earnest money is typical?
A: Typically 1-3% of the purchase price, but can vary by market and price range.

Q2: Is earnest money refundable?
A: It depends on the contract terms and why the deal falls through. It's usually refundable if contingencies aren't met.

Q3: Who holds the earnest money?
A: Typically held in escrow by a title company, real estate broker, or attorney.

Q4: When is earnest money due?
A: Usually due when the purchase agreement is signed or within a few days after.

Q5: Can earnest money be part of the down payment?
A: Yes, earnest money is typically applied to the down payment or closing costs at settlement.