Hong Life CalculatorsUnderstanding the earnest money calculator — concept and principle
This calculator works out the earnest money deposit on a home purchase and shows how it fits into the rest of the cash you need: the total down payment, the part still due at closing, closing costs, cash due at closing after the deposit, total cash needed and the loan amount. Use it when making an offer on a home in the US or planning how much cash to have ready and when.
How it is calculated
- Earnest money = purchase price × deposit %.
- Down payment = price × down-payment %; loan = price − down payment.
- Closing costs = price × closing-cost %.
- Cash due at closing = down payment + closing costs − earnest money.
- Total cash needed = down payment + closing costs (the deposit is part of it).
The principle
Earnest money is a good-faith deposit the buyer pays when the seller accepts an offer. It shows the seller that the buyer is serious, and it is usually held by an escrow or title company. At closing it is credited toward the buyer's down payment and closing costs, so it is not an extra cost, only an earlier payment. Whether it is refunded if the deal falls through depends on the contingencies in the contract, such as inspection, financing and appraisal, and on meeting their deadlines.
Worked example
Default inputs: price $400,000, earnest money 2%, down payment 10%, closing costs 3%.
- Earnest money = 400,000 × 2% = $8,000.
- Down payment = 400,000 × 10% = $40,000; still due at closing = 40,000 − 8,000 = $32,000.
- Closing costs = 400,000 × 3% = $12,000.
- Cash due at closing = 40,000 + 12,000 − 8,000 = $44,000.
- Total cash needed = $52,000; loan = $360,000.
| Purchase price | Earnest money deposit |
|---|---|
| 100,000 | $2,000 |
| 200,000 | $4,000 |
| 300,000 | $6,000 |
| 400,000 | $8,000 |
| 500,000 | $10,000 |
| 600,000 | $12,000 |
| 800,000 | $16,000 |
How to read the result
The deposit is due within days of an accepted offer, so that money must be available early. The cash due at closing is the larger amount needed later. Together they equal the total cash needed, which should not use up your emergency savings.
Common mistakes
- Treating earnest money as an extra cost on top of the down payment.
- Missing contingency deadlines, which can put the deposit at risk.
- Sending the deposit to an unverified account; wire fraud targeting home buyers is a known risk.
- Forgetting that typical deposit percentages vary by market.
Frequently asked questions
Do I get earnest money back?
It is credited at closing; if the deal fails, a refund depends on the contract's contingencies and deadlines.
Who holds the earnest money?
Usually an escrow company, title company or a broker's trust account.
Is earnest money part of the down payment?
Yes. It is credited toward the down payment and closing costs at closing.
Sources: Standard real-estate settlement arithmetic: deposit = price × percentage, credited against down payment and closing costs at closing