When you buy a house, you will probably come across serious money. This is a deposit that shows the seller who is taking the purchase seriously. But what happens to the money when the transaction closes? Is it heading towards your down payment? Would you get it back? Or does the seller hold it?
Understanding how serious money works can help you feel more confident as you navigate the home viewing process. This Redfin article breaks down exactly what happens to your serious money when you close, and what is expected in different scenarios.
What is serious money?
Earning Money is the deposit you make after an offer at home has been accepted to show sellers that you are serious about purchasing. Think of it as a good payment you will tell the seller you are committed to.
This deposit is usually 1% to 3% of the home’s purchase price, but the amount varies depending on the agreement between the local market and the customer and seller.
Earning Money is usually kept in an escrow account. Neutral third parties, such as title companies and real estate agents, will retain the funds until the sale is complete. This prevents buyers and sellers from protecting both parties during the transaction, and sellers have no access to the money either.
What will happen to serious money when the store closes?
When you close, your serious money just doesn’t go away and applies to the cost of buying a home. Usually, this means:
It can pass your down payment. If you’re making a down payment at home, serious money will be deducted from what you owe. It covers some of the closure costs. If the down payment is already covered, serious money will help you pay lenders’ fees, title fees and other closure fees. You can get a refund. If your serious money exceeds your total costs at the time of closing, you will receive an excessive amount refund. This is more common with VA or USDA loans and does not require a down payment.
For example: Let’s say you defeated $5,000 in your dream house in Boston, Massachusetts with earnest money. If the total amount (down payment + closing cost) is $20,000 at the time of closing, you can borrow an additional $15,000 at the time of closing.
So, can you get serious money when you close?
In most cases, yes – but it is not usually as a direct refund. Instead of retrieving serious money when closing as cash, as mentioned above, it usually applies to down payment or closing costs. So, there is no check for the amount you put, but the money is still heading towards the purchase of the house.
However, there are a few instances that may be refunded.
You paid more than you owe. If your serious money deposit is higher than the cash-to-closure amount you need, you’re regaining the excess. You are using an unpaid payment loan. If you are using a VA or USDA loan, you do not need to pay a down payment. If your serious money is higher than your closing costs, the extra amount will be refunded. I received a seller’s concession or lender’s credit. If the seller agrees to pay a portion of the closing costs, or if the lender offers credit, the amount owed at the time of closing is lower than the serious money he has already paid, which could lead to a refund.
For example: I spent a full-fledged $4,000 for my Portland home, but I only borrowed $3,000 when I closed thanks to the seller’s concessions and lender’s credit. This means you can receive $1,000 in serious money.
Alternative scenario: What else could happen with serious money?
There are several situations where you can refund or lose your serious money.
1. I’ll come back for unexpected circumstances → You’ll get your serious money back
Most purchase agreements include contingencies that allow you to cancel a transaction without penalty. If you come back for any of these protected reasons, you will get serious money back.
Test Contingency: If a family test reveals a serious problem and decides to leave (within an agreed time), you can get your money back. Fundraising Contingency: If your loan collapses despite your best efforts, you can usually get back and recover your serious money. Rating Contingency: If your home is rated as less than the purchase price and you cannot negotiate a lower price, you may be able to leave with a deposit.
2. You’ll come back without a good reason → Sellers will keep serious money
If you decide not to make a purchase without a contract protected reason, the seller will maintain your serious money as compensation for your time and effort.
3. Sellers will retreat → you will get your serious money back
If the seller cancels the transaction (without the reason permitted by the contract), the serious money must be fully returned. In some cases, there may even be a legal basis for sue for damages.
4. Closing is delayed → Money will remain in escrow
If the closure is pushed back due to a title issue, funding delay, or other factors, your serious money will remain in escrow until the sale is confirmed.
5. The transaction will collapse due to valuation gap → depends on your contract
If the home rating is lower than the purchase price and there is no contingency of the rating, you may need to make up for the difference or lose serious money.
