What Is Earnest Money?
Earnest money is a deposit made under the purchase contract demonstrating the buyer's commitment to the transaction. It is generally held by the designated escrow or title party according to the contract.
Example
Example
Buyer earnest money deposit
$10,000
At closing, that $10,000 may be credited as part of the buyer's required funds according to the transaction. The lender therefore may need to know: where did the $10,000 come from?
Acceptable Source
Depending on the program:
- Checking
- Savings
- Brokerage assets
- Documented gift funds
- Other approved asset source
Cash Can Be a Problem
If the buyer deposits $10,000 in physical cash immediately before sending earnest money, sourcing that money can become difficult.
Borrowed Earnest Money
Do not secretly use a credit card advance, personal loan, or borrowed money from a friend without telling the lender. That could create undisclosed debt.
Gifted Earnest Money
Potentially permitted when properly structured and documented under the loan program.
The Deposit Deadline Still Matters
Mortgage sourcing and the purchase contract are separate issues. Lisa helps make sure the buyer meets the contractual deposit deadline. The lender helps verify the funds.
WIRE FRAUD WARNING
Before sending earnest money:
Verify wiring instructions directly with the escrow or title company using a trusted phone number.
Fraudsters target real estate transactions and can send convincing fake wiring instructions. Never send money based only on a changed email instruction.
Read the full real estate wire fraud guide and never trust emailed wiring instructions before any transfer.
