How Much Earnest Money Should You Put Down When Buying a Home?
How Much Earnest Money Should You Put Down When Buying a Home?
Most homebuyers put down about 1% to 3% of the purchase price as earnest money, although the right amount depends on the local market, the property, competing offers, and the risk you’re comfortable taking. Fannie Mae describes 1% to 3% as typical, while Freddie Mac provides a broader general range of 1% to 5%. These are guidelines, not required amounts.
For a $450,000 home, 1% would be $4,500. But that doesn’t automatically mean you should offer $4,500.
In Raleigh and Wake County, buyers also need to understand the difference between earnest money and the North Carolina due diligence fee. They aren’t the same thing, and they don’t carry the same risk.
I’m Brandy Nemergut, a Realtor with eXp Realty in Raleigh, North Carolina, helping buyers understand the costs, contracts, and decisions involved in purchasing a home in Raleigh and Wake County.
Here’s how to decide how much earnest money to put down without putting more of your savings at risk than necessary.
What Is Earnest Money?
Earnest money is a deposit that shows the seller you’re serious about buying the property.
It is sometimes called:
A good-faith deposit
An earnest money deposit
EMD
Contract deposit
The money is normally held in an escrow account by the party named as the escrow agent in the purchase contract. If the transaction closes, the deposit is credited to the buyer according to the closing statement. It may be applied toward the down payment, closing costs, or another amount the buyer owes at closing.
Earnest money is not an extra charge when the purchase closes normally.
Think of it as paying part of your final cash requirement earlier in the process.
How Much Earnest Money Should You Put Down?
A reasonable starting point is often 1% of the purchase price, but the offer should be based on the specific transaction.
Here are a few examples:
Purchase price1% earnest money2% earnest money3% earnest money$300,000$3,000$6,000$9,000$400,000$4,000$8,000$12,000$500,000$5,000$10,000$15,000$600,000$6,000$12,000$18,000$750,000$7,500$15,000$22,500
These examples don’t mean every Raleigh buyer should offer a percentage.
In practice, earnest money can also be a flat amount such as $2,000, $5,000, or $10,000. The amount is negotiable and should make sense for your available cash, financing, contract timeline, and the level of competition.
The best question isn’t, “What percentage does everyone use?”
It’s:
“What amount makes my offer credible without exposing more money than I’m prepared to lose?”
Earnest Money vs. a Down Payment
Earnest money and a down payment are related, but they are not the same.
Earnest money
Earnest money is paid after the offer is accepted and held during the contract period.
Down payment
The down payment is the portion of the purchase price you’re paying without mortgage financing.
For example, suppose you’re buying a $400,000 home and plan to make a $40,000 down payment.
If you previously paid $4,000 in earnest money and the transaction closes, that $4,000 is generally credited as part of the funds you’ve already paid. You wouldn’t normally pay the same $4,000 twice.
Your final Closing Disclosure should show how your deposit is being credited. Mortgage borrowers generally receive this disclosure at least three business days before the scheduled closing, giving them time to review the figures and ask about unexpected changes.
Earnest Money vs. North Carolina’s Due Diligence Fee
This is where many relocating buyers get confused.
North Carolina’s commonly used residential contract can include two separate amounts:
Earnest money deposit
Due diligence fee
They have different purposes.
Earnest money deposit
Earnest money is delivered to the escrow agent and held in escrow. The current North Carolina standard contract provides for an initial earnest money deposit to be delivered within five days of the effective date. It may also include a separate additional earnest money deposit due on a negotiated date.
Due diligence fee
The due diligence fee is a negotiated amount paid directly to the seller for the buyer’s right to investigate the property and terminate the contract during the agreed due diligence period.
The fee becomes the seller’s property when the contract becomes effective. It is usually nonrefundable if the buyer terminates, although it is credited to the buyer if the purchase closes. The contract contains limited exceptions, including certain situations involving a material seller breach.
Here’s the basic comparison:
FeatureEarnest moneyDue diligence feePaid toEscrow agentSellerHeld in escrowYesNoCredited at closingYesYesUsually refundable during due diligenceYes, following a proper terminationNoAt risk after due diligence expiresYesAlready belongs to sellerAmount required by lawNo set amountNo set amount
A buyer could offer earnest money without a due diligence fee, a due diligence fee without earnest money, both, or potentially neither. The amounts are negotiated as part of the offer.
When Is Earnest Money Refundable in North Carolina?
Under North Carolina’s standard residential contract, a buyer can generally terminate for any reason or no reason during the negotiated due diligence period.
When the buyer properly terminates within that period, the earnest money is typically returned. The due diligence fee usually is not.
During due diligence, buyers commonly investigate:
The home’s physical condition
Inspection findings
Repair estimates
Financing
Appraisal
Title
Insurance availability
Survey issues
Septic or well systems
HOA documents
Flood risk
Personal suitability
The due diligence period is negotiable. Buyers need enough time to complete the investigations that matter to them, especially loan approval, inspections, appraisal, and repair discussions.
When Could You Lose Your Earnest Money?
Earnest money can become vulnerable when the buyer continues past the due diligence deadline and then fails to close.
North Carolina’s standard contract does not make loan approval a general condition of the contract. A buyer who can’t obtain financing after the due diligence period expires may be at risk of losing the earnest money deposit.
The current standard contract also states that, following a material buyer breach, the seller may be entitled to the earnest money deposit. The earnest money and due diligence fee together may serve as the agreed liquidated damages under that form.
Possible risk situations include:
Your financing falls through after due diligence.
You change your mind after the deadline.
You can’t provide the required closing funds.
You fail to close for a reason not protected by the contract.
You don’t follow the contract’s termination requirements.
You miss a deadline because you thought weekends didn’t count.
You agree to a large additional deposit that becomes due later.
North Carolina’s standard form generally counts consecutive calendar days, including Saturdays, Sundays, and holidays, unless the contract says otherwise.
Never rely on memory or an informal text message when a contract deadline is approaching.
Five Factors That Should Determine Your Earnest Money Amount
1. The level of competition
A larger earnest money deposit may help an offer feel stronger when several buyers are competing.
It shows that you’re willing to place meaningful money behind your commitment.
But sellers don’t look at earnest money alone. They may also consider:
Purchase price
Due diligence fee
Due diligence period
Financing type
Down payment
Appraisal risk
Requested seller concessions
Closing date
Sale-of-home conditions
The buyer’s financial strength
A large deposit won’t always overcome weak financing or an unrealistic offer price.
2. Your available cash
Don’t commit so much earnest money that you can’t comfortably cover:
The due diligence fee
Inspections
Appraisal
Closing costs
Down payment
Moving expenses
Repairs after closing
Emergency savings
Your lender may also need to verify where the deposit came from.
Fannie Mae’s lender guidance says earnest money used toward the borrower’s required contribution must come from an acceptable, documented source. Large deposits or amounts that exceed what is customary for the area may receive closer review.
Keep copies of the check, transfer confirmation, receipt, and bank records.
3. Your confidence in the transaction
The more uncertain the transaction, the more careful you should be about placing a large amount at risk.
Questions to consider include:
Has your lender reviewed your income, assets, and credit?
Is your preapproval based on verified documents?
Could your employment situation change?
Do you need to sell another property?
Is the home unusual or difficult to appraise?
Does the property need significant work?
Are you comfortable with the insurance cost?
Is the closing timeline realistic?
A large earnest money deposit makes more sense when you’re financially prepared and confident you can complete the purchase.
4. The length of the due diligence period
A shorter due diligence period can make an offer more attractive to a seller, but it gives the buyer less time to complete inspections, financing work, appraisal, and other investigations.
Your earnest money becomes more exposed after the due diligence period ends.
The amount and the timeline should be considered together.
A $10,000 deposit with a three-week due diligence period carries a different practical risk than the same deposit with only seven days to complete everything.
5. The property and seller’s priorities
Some sellers care more about certainty than the highest possible price.
A seller who has already moved may prefer:
A dependable closing date
Strong financing
Fewer conditions
A meaningful earnest money deposit
Clear proof that the buyer has enough cash
Another seller may care more about time, flexibility, or staying in the home briefly after closing.
Your agent should find out which terms matter before you increase a deposit unnecessarily.
Should You Offer More Earnest Money in a Multiple-Offer Situation?
Sometimes.
Increasing earnest money may strengthen an offer because it shows commitment. Fannie Mae notes that buyers may face multiple offers and need to consider the complete package when deciding how to compete.
But increasing earnest money isn’t always the best move.
You might create a stronger offer by:
Improving the price
Shortening the due diligence period carefully
Reducing requested concessions
Providing stronger lender documentation
Offering a closing date the seller prefers
Limiting unnecessary conditions
Increasing the earnest money by a smaller amount
The goal is to make the seller confident without making the offer unsafe for you.
Hypothetical Raleigh Buyer Scenario
A buyer is purchasing a $475,000 home in Wake County.
The buyer has enough savings for the down payment, closing costs, inspections, moving expenses, and reserves. The home has multiple offers, but the buyer doesn’t want to put an excessive nonrefundable due diligence fee at risk.
The offer might include:
$475,000 purchase price
$5,000 earnest money
A smaller negotiated due diligence fee
A realistic due diligence period
Strong lender documentation
A closing date that works for the seller
The buyer could decide to raise the earnest money instead of placing the same additional amount into the nonrefundable due diligence fee.
That doesn’t guarantee acceptance. It simply creates a different balance between seller confidence and buyer risk.
Hypothetical First-Time Buyer Scenario
A first-time buyer is purchasing a $325,000 townhome.
The buyer has saved enough to complete the purchase, but only after accounting for:
Down payment
Closing costs
Inspection
Appraisal
Moving expenses
A small emergency fund
Offering $10,000 in earnest money and a large due diligence fee might create unnecessary stress.
A smaller earnest money deposit may be more reasonable, especially when paired with solid financing and a clean offer.
You don’t need to empty your savings account to prove that you’re serious.
Common Earnest Money Mistakes
Confusing earnest money with the due diligence fee
Earnest money is usually held in escrow.
The due diligence fee usually goes directly to the seller and is much harder to recover after the contract is formed.
Know which payment you’re making.
Offering a large amount without understanding the deadline
The earnest money may be protected during due diligence but become vulnerable afterward.
Before submitting an offer, know the exact date and time your due diligence rights expire.
Assuming financing automatically protects the deposit
North Carolina’s standard contract doesn’t generally make loan approval a condition of the purchase. Buyers should work closely with their lender and complete financing tasks during the due diligence period.
Moving money without talking to the lender
Large deposits, transfers, borrowed funds, or unexplained cash can create mortgage-documentation problems.
Speak with the lender before moving money between accounts or accepting financial help.
Sending money using unverified instructions
Wire fraud is a serious risk in real estate transactions.
The current North Carolina contract warns buyers to call the closing attorney’s office independently and verify instructions before wiring funds. It also warns against relying on a phone number provided only through email.
Treating the typical percentage as a rule
One percent may be too much in one transaction and too little in another.
The amount should fit the market and your circumstances.
Earnest Money Checklist for Buyers
Before submitting an offer, confirm:
The exact earnest money amount
The exact due diligence fee
Who will hold the earnest money
Who receives the due diligence fee
How each payment will be delivered
When each payment is due
The due diligence deadline
The closing date
What happens if you terminate
What happens if financing fails
Whether an additional earnest money deposit is required
How much cash you’ll still need for closing
Whether your lender can document the source of funds
In North Carolina’s current standard contract, the initial earnest money deposit is generally due to the escrow agent within five days of the effective date, while the due diligence fee is delivered to the seller on the effective date. Your signed contract controls, so review the actual dates and terms rather than assuming they’re the same in every transaction.
Frequently Asked Questions
How much earnest money should I put down?
A common national range is approximately 1% to 3% of the offer price, although some transactions use more or less. The best amount depends on your local market, competition, available cash, and contract risk.
Is earnest money required in North Carolina?
The standard North Carolina contract provides spaces for earnest money and a due diligence fee, but the contract can still be legally binding without a particular minimum amount. The terms are negotiated between buyer and seller.
Do I get my earnest money back if I cancel?
A buyer using North Carolina’s standard contract will typically receive the earnest money back after properly terminating during the due diligence period. The due diligence fee is usually not returned.
What happens to earnest money at closing?
The earnest money is credited to the buyer at closing or disbursed according to the contract. It may reduce the amount the buyer must bring for the down payment or closing costs.
Can earnest money be part of my down payment?
Yes. Fannie Mae permits an eligible, documented earnest money deposit to be used toward the borrower’s down payment or closing costs. The lender must be able to verify the funds when required.
Is earnest money the same as a due diligence fee?
No. Earnest money is normally held in escrow. In North Carolina, the due diligence fee is paid to the seller and is generally nonrefundable if the buyer terminates. Both are credited at closing when the purchase is completed.
Can I lose earnest money if my loan is denied?
Yes, especially if the due diligence period has expired and the contract does not provide another protection. North Carolina buyers should work with their lender early and make financing decisions before the due diligence deadline.
How Much Earnest Money Is Right for Your Raleigh Home Purchase?
There is no perfect earnest money amount for every home.
Start with the local market, then consider:
How competitive the property is
How much cash you have available
The size of the due diligence fee
Your financing strength
Your due diligence timeline
The amount you’re prepared to place at risk
A strong offer should help the seller feel confident without putting the buyer in a financial position they don’t understand.
Brandy Nemergut is a Realtor with eXp Realty in Raleigh, North Carolina, helping buyers navigate offers, earnest money, due diligence, and home purchases throughout Raleigh and Wake County.
This guide provides general real estate information and is not legal advice. Contract rights depend on the exact documents and facts involved. Buyers with legal questions should consult a North Carolina real estate attorney before signing or terminating a contract.
Brandy Nemergut, Realtor | eXp Realty
Raleigh, NC
919-583-6895
LivingInRaleighNow.com
[email protected]
