By Mike Basti, President and Mortgage Broker · NMLS #322904An earnest money deposit (EMD) is a good-faith deposit — typically 1–3% of the purchase price in California — that a buyer puts into escrow after an offer is accepted, showing the seller they’re serious. It’s held by a neutral escrow company and credited toward your down payment and closing costs at closing. It’s generally refundable if you back out for a reason protected by a contingency, and at risk if you break the contract without one.
How much earnest money in California?
Most California offers include 1–3% of the price, though in competitive markets buyers sometimes offer more to stand out. On a $800,000 home, that’s roughly $8,000–$24,000. It is not an extra cost — it’s applied to your down payment and closing costs at the end.
Where the money goes
You wire the EMD to the neutral escrow or title company — never directly to the seller. It sits there until closing, when it’s credited to you, or until the contract is canceled, when escrow disburses it per the agreement.
When you get it back — contingencies
Your deposit is protected by contingencies in the purchase contract. Common ones let you cancel and recover your EMD if:
- The inspection reveals problems you won’t accept.
- The appraisal comes in below the price.
- Your loan isn’t approved within the financing contingency window.
If you cancel for a reason not covered by an active contingency — or simply get cold feet after removing them — the seller may be entitled to keep the deposit. California contracts typically cap the seller’s remedy at 3% of the price via a liquidated-damages clause.
Bottom line: Keep your contingencies in place until you’re confident, and never wire earnest money anywhere but the verified escrow company. A strong pre-approval lets you keep a tight financing contingency without risking your deposit.
Earnest money vs. down payment vs. closing costs
Buyers often mix these up. On an illustrative $800,000 purchase with 20% down:
| Item | Example | When paid | Note |
|---|---|---|---|
| Earnest money (3%) | $24,000 | Within days of acceptance | Credited toward your down payment |
| Rest of down payment | $136,000 | Before closing | Total down = $160,000 |
| Closing costs (roughly 2–5%) | $16,000–$40,000 | Before closing | Lender, title, escrow, prepaids |
The deposit is part of the down payment, not on top of it. If a deal cancels under a contingency, escrow typically needs signed cancellation instructions from both sides before it releases the money, which can take a few days.
How your lender looks at the deposit
Your loan file has to show where the earnest money came from. Expect your lender to ask for:
- A copy of the cleared wire or cashier’s check.
- The escrow receipt.
- Bank statements showing the funds were yours before you sent them.
If the deposit came from a gift, you’ll need a gift letter and the donor’s transfer record. Large cash deposits right before the wire can slow underwriting, so keep the trail clean. See our pre-approval guide for what lenders verify up front.
Wire fraud: a simple safety checklist
Real estate wire fraud usually starts with a fake email that looks like it came from escrow or your agent, with “updated” wiring instructions.
- Get wiring instructions directly from escrow at the start, in person or by a known phone number.
- Before wiring, call escrow at a number you found yourself, not one in the email.
- Treat any change to instructions as fraud until proven otherwise.
- Call escrow the same day to confirm the funds arrived.
Questions about how your deposit fits your loan? Rates change daily, so for an accurate quote call 949-379-5320 (Newport Beach) or 310-759-4757 (Marina del Rey).
Frequently asked questions
How much earnest money is required in California?
Typically 1–3% of the purchase price, though competitive markets may push it higher. It’s applied to your down payment and closing costs, not an extra fee.
Is earnest money refundable?
Generally yes if you cancel for a reason protected by an active contingency (inspection, appraisal, or financing). If you break the contract without one, the seller may keep it — often capped at 3% under California’s liquidated-damages clause.
Where does earnest money go?
Into a neutral escrow or title company’s trust account — never directly to the seller — until closing, when it’s credited to you.
When do I pay earnest money?
Usually within 1–3 business days after your offer is accepted, by wire or cashier’s check to the escrow company named in the contract.
Can my earnest money come from a gift?
Usually yes. Most loan programs allow gifted funds for the deposit, but you'll need a signed gift letter and records showing the money moving from the donor to you or to escrow.
Does earnest money count toward my down payment?
Yes. At closing, escrow credits the full deposit to your side of the transaction, so it reduces the cash you bring for the down payment and closing costs.
Save Financial, Inc. — NMLS #377740, DRE #01875766. Equal Housing Opportunity. Figures are illustrative for 2026 and not an offer of credit or a guarantee of rates or approval.