What Is Earnest Money? (2027 Buyer's Guide)

Earnest money is the good-faith deposit you promise in your offer and deliver once the seller accepts. It sits in an escrow account, held by a brokerage or the settlement company named in your contract, until closing, when it is credited toward your down payment and closing costs. Virginia law sets no required amount. In Hampton Roads, deposits of roughly 1% to 2% of the price are common practice. You get the money back if you cancel under a contract contingency before its deadline, and you can lose it if you default. The Consumer Financial Protection Bureau defines it the same way: a deposit that shows good faith on a signed contract to buy a home.

Reason for cancellation	EMD returned?
Failed home inspection (within window)	Yes
Financing falls through (within window)	Yes
Low appraisal (if contract has an appraisal contingency)	Yes
Title issues that can't be cleared	Yes
HOA/condo resale certificate cancellation (Va. Code § 55.1-2312)	Yes
Buyer cold feet outside contingencies	No, often forfeited; depends on contract
Seller backs out	Yes, plus possible other remedies
Buyer fails to perform on time	Often forfeited; depends on contract

What is earnest money?

Earnest money (often shortened to EMD, for earnest money deposit) is the amount you commit to in your purchase contract to show the seller you intend to close. Once the contract is ratified, you deliver it to the escrow holder the contract names. It stays there while you work through inspections, the appraisal and loan approval.

At settlement the deposit shows up as a "Deposit" credit on your Closing Disclosure, which reduces the cash you bring to the table. So a $5,000 deposit on a deal where you need $20,000 for down payment and closing costs means you bring the remaining $15,000 at closing. It is not an added fee; the only difference from your down payment is timing. For a full picture of the money you need at closing, see our guide to closing costs in Virginia, and for how escrow works beyond the deposit, see what escrow is and how it protects buyers.

How much earnest money should you offer?

Virginia law does not set an amount. The figure is negotiated in your offer, and in Hampton Roads deposits of roughly 1% to 2% of the purchase price are common practice. Using VaHome analysis of REIN MLS data for September 2026:

• Virginia Beach: median sale price $442,500, so 1% to 2% is about $4,425 to $8,850 (Virginia Beach market report)
• Chesapeake: median sale price $410,000, so 1% to 2% is about $4,100 to $8,200 (Chesapeake market report)

A larger deposit tells the seller you have more at stake, which can help when homes are selling quickly. Median days on market in September 2026 was 17 in Virginia Beach and 21 in Chesapeake (same VaHome analysis). The trade-off is that a larger deposit is more money at risk if you default, and it is cash you cannot use elsewhere until closing. Price, contingencies, closing date and a solid pre-approval usually matter to a seller as much as the deposit does.

Plan for loan documentation. Your lender will want to see where the deposit came from. For FHA loans, HUD's Single Family Housing Policy Handbook 4000.1 requires the lender to verify and document the deposit and its source when it exceeds 1% of the sales price or looks large compared with your savings history. Gifted earnest money must also meet the program's gift rules. Pay the deposit from your own account and keep the receipt. Our FHA loan guide covers the other FHA requirements, and a Hampton Roads lender can tell you exactly what they will ask for.

Who holds the earnest money?

A neutral escrow holder, named in your contract. In Hampton Roads that is usually either a real estate brokerage's escrow account or a settlement agent (a title or settlement company or a closing attorney). Settlement agents are regulated under Virginia's Real Estate Settlement Agents law, and brokers under the real estate licensing law and Real Estate Board regulations. The money should never go to the seller personally or to anyone's personal account.

Before you send anything, check the contract for who the escrow agent is, then confirm the payment details with that office directly. Three other points from the Real Estate Board's escrow regulation (18VAC135-20-181) are worth knowing:

• If the deposit goes into an interest-bearing account, the contract must state in writing how the interest will be paid out.
• A licensee cannot take any part of the deposit as commission until the sale is completed, unless all parties agree otherwise in writing.
• Closing expenses such as appraisal or credit report fees cannot be deducted from the deposit without the written agreement of all parties.

Virginia's escrow rules for earnest money

When a real estate broker holds your deposit, Virginia Code § 54.1-2108.2 controls how it is handled:

• Deposit deadline: the broker must place it in the firm's escrow account by the end of the fifth business banking day after ratification, unless all parties agree otherwise in writing.
• Deposit held elsewhere: if the contract names another escrow agent, such as a settlement company, the broker must get the deposit to that agent by the end of the fifth business banking day after receiving it.
• If the sale does not close: the funds stay in escrow until all parties agree in writing, a court orders a release, a court takes the funds in an interpleader action, or the contract's clear and explicit terms say who gets them.
• 15-day notice option: a broker may send written notice that the deposit will be released unless the other party sends a written protest within 15 calendar days. A timely protest stops the release.

Separately, § 54.1-2108 prohibits a licensee from diverting or misusing escrow funds and lets the Real Estate Board ask a court to protect the money, including by appointing a receiver. If a home under contract is lost to foreclosure before closing, § 54.1-2108.1 treats the foreclosure as ending the contract, and the broker may return the deposit to the buyer if the buyer is not in default.

The Real Estate Board's escrow regulation was renumbered effective April 1, 2026: the old 18VAC135-20-180 was repealed and replaced by 18VAC135-20-181, which points back to § 54.1-2108.2 for handling earnest money.

When do you get earnest money back?

You get it back when you cancel for a reason your contract allows, using the method and deadline the contract sets. The deadlines are negotiated, so they differ from deal to deal. Common protections include:

• Home inspection contingency: lets you cancel or negotiate after inspections. Windows of about 7 to 14 days are common practice, but your contract controls. See home inspection vs. appraisal for what each one covers.
• Financing contingency: protects you if your loan is not approved within the contract's terms.
• Appraisal contingency: if your contract includes one, it protects you when the home appraises below the price and the gap is not resolved.
• HOA or condo resale certificate: under Virginia's Resale Disclosure Act, § 55.1-2312, unless the contract sets a different period you can cancel within three days of ratification (if you received the certificate before) or within three days of receiving it (if it arrives after). If it is never delivered, you can cancel any time before settlement. Cancellation is without penalty, and the seller must see that your deposit is returned promptly. Notice must be in writing, delivered as the contract requires.
• Title problems: defects in title that cannot be cleared before closing.

Even when you are clearly entitled to the refund, the escrow holder still follows the release steps above, so expect paperwork (usually a release signed by both sides) before the money moves.

When can you lose earnest money?

You put the deposit at risk if you:

• Back out without a contingency or other contract right that covers your reason
• Miss a deadline, such as sending inspection objections or a cancellation notice after the window closes
• Fail to perform, such as not closing on time or not applying for your loan as the contract requires

Many contracts let the seller keep the deposit as liquidated damages if the buyer defaults, and some reserve other remedies. What applies depends on the contract you signed. A deposit is not a fee for an option to walk away, so before you sign, have your agent walk you through every deadline and what each contingency does and does not cover.

How to wire earnest money safely

Criminals target home buyers with fake emails that look like they come from an agent or title company and carry "updated" wire instructions. The American Land Title Association describes closing scams as among the costliest frauds aimed at buyers. Protect yourself:

• Get wire instructions from the escrow holder named in your contract, then call that office at a phone number you looked up yourself, not one from the email, to confirm them before you send.
• Treat any message that changes the instructions as a red flag, no matter who it appears to come from.
• Call the escrow holder after you send the wire to confirm it arrived.
• If something seems wrong, call your bank right away and ask it to recall the wire, then report it to the FBI's Internet Crime Complaint Center at ic3.gov. Speed matters.

Some escrow holders also accept a cashier's check or other payment methods. Ask what they take.

Frequently Asked Questions

How much earnest money should I put down?

There is no legal requirement in Virginia. About 1% to 2% of the purchase price is common practice in Hampton Roads. A larger deposit can strengthen an offer, while a smaller one keeps more cash free and puts less at risk.

Who holds the earnest money?

The escrow holder named in your contract, usually a brokerage escrow account or a settlement company. Never the seller personally.

How quickly does the broker have to deposit my earnest money?

Under Virginia Code § 54.1-2108.2, by the end of the fifth business banking day after ratification, unless all parties agree otherwise in writing. If a settlement agent will hold it, the broker must deliver it within five business banking days of receiving it.

When do I get earnest money back?

If the sale closes, it is credited to you on your Closing Disclosure. If you cancel under a contingency within its deadline (inspection, financing, appraisal, HOA or condo resale certificate, title), it is returned to you once the release is handled.

Can I lose earnest money?

Yes, if you walk away without a contract right to do so, miss a deadline or fail to close. The contract decides what the seller can keep.

What if the buyer and seller disagree about who gets it?

The escrow holder cannot simply pick a side. Under Virginia law a broker releases disputed funds only by written agreement of the parties, a court order, an interpleader action, the contract's clear terms, or after a 15-day written notice that draws no written protest.

Does earnest money earn interest?

Ask the escrow holder. If the deposit is placed in an interest-bearing account, Virginia regulation requires the contract to state in writing how the interest will be paid out.

Is earnest money the same as a down payment?

No. Earnest money is paid early, after ratification. The down payment is due at closing. At closing, the deposit is credited against what you owe, so it reduces the cash you bring.

How do I pay earnest money?

Usually by wire transfer or cashier's check, depending on what the escrow holder accepts. Always confirm wire instructions by phone, using a number you found yourself.

What happens if the seller backs out?

Your deposit should be returned, and you may have other remedies depending on the contract and the reason. Talk to a Virginia real estate attorney if the seller refuses to close.

Sources & further reading

• CFPB: Mortgage key terms (earnest money)
• CFPB: Buying a house, step by step
• Virginia Code § 54.1-2108.2: Protection of escrow funds held by a real estate broker
• Virginia Code § 54.1-2108: Escrow funds
• 18VAC135-20-181: Maintenance and management of escrow accounts
• Virginia Code § 55.1-2312: Cancellation of contract by purchaser (Resale Disclosure Act)
• HUD Handbook 4000.1: Earnest money deposit verification (FHA)
• ALTA: Wire fraud prevention
• FBI Internet Crime Complaint Center
• Virginia Real Estate Board
• Virginia Property Owners' Association Act

Information reflects Virginia law, regulations and VaHome market data as of October 2026. This guide is general information, not legal advice. Always confirm current details with your contract, the escrow holder, your lender or a Virginia real estate attorney before relying on any specific figure or rule.