Earnest Money vs. Down Payment: What Every Buyer Should Know
If you're buying a home, you'll hand over money at two very different points in the process — once when you make your offer, and again when you close. They're not the same thing, they don't do the same job, and only one of them is refundable. Here's how earnest money and your down payment differ, and where a title and escrow company fits into all of it.
What is earnest money?
Earnest money — sometimes called a good faith deposit — is a sum submitted along with your offer to purchase. Its job is simple: it signals to the seller that you intend to follow through.
That signal matters more than most first-time buyers realize. The moment a seller accepts your offer, they take the home off the market. If the deal collapses weeks later, they've lost time, momentum, and often other interested buyers. Earnest money gives them something at risk on your side of the table, which is why competitive markets have made it close to standard practice.
Is earnest money refundable?
Your purchase contract will spell out the deposit amount, but you don't send the funds until the offer is accepted. Expect the check to be deposited promptly — and understand where it goes. The money does not go to the seller. It's held in an escrow account by a neutral third party, typically the title agency handling the transaction, and it stays there until closing.
That neutral handling is the whole point. Under the right circumstances, your deposit comes back to you. If the seller walks away from the deal, you get your earnest money returned. And there are other paths to a refund, most of them written into the contract as contingencies.
Contingency clauses are conditions that let you exit the deal and keep your deposit. The most common ones include:
- Appraisal contingency. If the home appraises for less than your contract price and you and the seller can't agree on an amended price, you can terminate and recover your deposit.
- Inspection contingency. If an inspector turns up significant undisclosed problems — water intrusion, mold, structural or system failures — you can renegotiate, ask the seller to make repairs, or walk away.
- Financing contingency. If your loan doesn't come through, whether because you no longer qualify or because the lender won't accept the property, you can exit with your deposit intact.
There are plenty of other contingencies available, but your real estate agent will tell you the same thing we do: piling them on works against you. Sellers generally prefer cleaner offers, because every additional condition is another way the deal can die after they've already taken the home off the market.
Your agent can't tell you what competing offers look like, but they can explain what's customary in your market and help you decide which protections actually matter for your situation.
What comes after your offer is accepted?
Once your offer is accepted and earnest money is in escrow, a handful of smaller expenses follow. Most are within your control, and a few are technically optional — though nearly all of them exist to protect you, not the seller.
- Home inspection. Good inspectors stay busy, so start early. Ask your agent for referrals, and look for someone experienced and genuinely independent — not someone with a working relationship with the seller. In Ohio, inspections commonly run in the $325–$400 range depending on the size and age of the property.
- Title search. Before you can close, someone has to confirm the seller can legally convey the property and that nothing is clouding the title — unreleased mortgages, judgment liens, unpaid taxes, easements, boundary problems, or errors in the chain of ownership. This is what a title agency does, and it carries a modest fee.
If the search comes back clean, you move to closing — where the largest sums change hands.
What is a down payment?
Your down payment is due at closing, and it sits on top of your closing costs. In Ohio, buyers should generally plan on closing costs running roughly 2% to 5% of the purchase price. On a $300,000 home, that's about $6,000 to $15,000, covering lender fees, appraisal, escrow and settlement services, title work, recording and transfer charges, and prepaid taxes and insurance.
The down payment itself is a separate matter between you and your lender, and the required amount depends entirely on the program:
| Loan type | Minimum down payment |
|---|---|
| VA (eligible veterans, service members, surviving spouses) | 0% |
| USDA (eligible rural and suburban areas, income limits apply) | 0% |
| FHA | 3.5% with a 580+ credit score; 10% from 500–579 |
| Conventional (first-time buyer programs) | 3% |
| Conventional (standard) | 5% |
- Assistance programs exist, and many don't require repayment. State housing agencies, counties, municipalities, nonprofits, and some employers run down payment assistance programs. A knowledgeable loan officer can tell you what you qualify for and how to apply.
- Gift funds are often allowed, but lenders apply strict rules. You'll need to document where the money came from and demonstrate that it isn't a loan in disguise.
- Some programs permit a second mortgage to cover the down payment or closing costs. Approach this carefully — you'll start out with very little equity — but it's an option worth understanding.
- You can always put down more than the minimum, and it usually pays to. Every dollar down is a dollar you're not paying interest on for the next 15 to 30 years, and a larger down payment can improve the rate you're offered by reducing the lender's risk.
The short version
Earnest money is paid when you make your offer, held in escrow by a neutral third party, and refundable to you under the contingencies written into your contract. Your down payment is paid at closing, comes from your own funds, and goes toward the purchase price.
Where First Source Title Agency comes in
We're the neutral party in the middle of all of this. First Source Title Agency holds earnest money in escrow, performs the title search, resolves title issues before they become closing-day emergencies, issues title insurance, and conducts the closing itself. Our job is to protect both sides of the transaction and make sure the funds and the deed end up exactly where they belong.
If you have questions about your escrow deposit, your title commitment, or what your closing figures actually mean, reach out. We'd rather explain it now than have you guess at the closing table.