What Is Earnest Money? (and Can You Lose Earnest Money on a House?)

by Brian Wittman

You'll get what earnest money is, who holds it in Illinois, where it goes at closing and the handful of ways buyers lose it. None of it's complicated once you see it laid out.

Here's what you may not realize. Earnest money isn't a fee. It's your own money, and it usually comes right back to you as part of your down payment. You only lose it when a date slips by. One missed deadline can turn a deposit you'd get back into money the seller keeps.

What is earnest money?

Earnest money is a deposit you put down after your offer's accepted to show the seller you're serious. The CFPB describes it as a good-faith deposit on a signed contract to buy a home. It's held by a third party, not spent, and at closing it's applied to your down payment or closing costs. If your deal ends for a reason your contract allows, it comes back to you.

How much earnest money do you put down?

There's no single number. The amount's negotiated as part of your offer, and it can move with the price of the house, how competitive the market is and what the seller expects.

A bigger deposit can make an offer look stronger. It also puts more of your money at risk if you miss a date. So the real question isn't how much you can put down. It's how much you're comfortable having on the line while your contingencies run, and that's worth talking through with your agent before you write the offer.

Who holds earnest money in Illinois?

Usually a real estate brokerage, a title company or an attorney. Your contract names which one, and it's worth knowing before you write the check.

When a brokerage holds it, Illinois rules are strict. Under the state's escrow rule, 68 Ill. Adm. Code 1450.750, the money goes into a separate escrow account by the next business day. It can't sit in an individual agent's account, either. It has to go to the sponsoring brokerage's escrow.

Title companies that hold escrow are regulated under Illinois' Title Insurance Act, and attorneys have to keep client money in trust accounts. So whichever one holds yours, there are rules about where it sits.

Does earnest money go toward your down payment?

Yes. It's not an extra cost on top of the house. At closing, your earnest money is credited toward your down payment or your closing costs, so you bring that much less to the table. Plug it into a cash to close calculator and you'll see it come off what you owe at closing.

Your lender will want to see where it came from, though. Under Fannie Mae's guidelines, lenders verify the source with a canceled check or a receipt from whoever holds it, plus your bank statements. Large or unusual deposits get a closer look. So pay it from your own account, and don't move money around right before you send it. Unexplained deposits are one of the things that can disqualify you from a mortgage before closing.

When do you get earnest money back?

You get it back when the deal ends for a reason your contract allows, and you use that reason the right way, on time. The CFPB puts it simply: if the contract's terminated for a permissible reason, the earnest money's returned to the buyer.

Those reasons are usually your contingencies. That's what they're for. Depending on what's in your contract, that can include attorney review, the home inspection, your financing or the appraisal. Each one has its own window and its own way of giving notice. Use it inside the window, the way your contract says to, and your deposit is protected. Knowing how home inspections work before you're in that window helps, because the clock doesn't stop while you read the report.

When can you lose earnest money?

Most of the time, you lose it because of a date, not a disaster. The CFPB says a buyer who doesn't perform in good faith may forfeit it to the seller. Here's what that usually looks like:

Missing a contingency deadline. Once the window closes, that exit's gone.
Walking away for a reason your contract doesn't cover. Cold feet or a different house usually isn't one.
Waiving a contingency to win the offer, then needing it. A waived contingency can't protect you later.
Giving notice the wrong way. Many contracts spell out how notice has to be sent and to whom.

None of these is rare, and none of them's dramatic. They happen because the dates run fast and nobody's tracking them. Your contract and your attorney decide what applies to you, so ask your attorney what each deadline means before it arrives.

What happens if the buyer and seller disagree?

If a brokerage is holding the money and there's a written dispute, it can't just pick a side. Under Illinois' escrow rule, it keeps holding the deposit until everyone signs a written release, a court decides or the money goes to the state.

So a disputed deposit can sit for a while. That's one more reason to use your contingencies on time and in writing, so there's nothing to dispute.

How do you send earnest money safely?

Treat it like the rest of your closing money, because scammers do. The CFPB warns buyers never to follow wiring instructions that come only by email. Confirm them by phone using a number you already know, not one from the message.

If something goes wrong, call your bank right away and ask for a wire recall, then report it to the FBI at ic3.gov. Minutes matter there, so don't wait.

The Bottom Line

Earnest money is your money, held by someone regulated, and it usually ends up as part of your down payment. You get it back when you leave for a reason your contract allows and you do it on time. You lose it when a date slips by or you walk away for a reason the contract doesn't cover.

Know your dates, keep everything in writing and send it from your own account. Getting the first big step of the purchase right makes the next five to ten years in that house a lot easier.

Frequently Asked Questions

Is earnest money refundable?

It can be. If your deal ends for a reason your contract allows, like a contingency used on time, it's usually returned. If you miss a deadline or walk away for a reason the contract doesn't cover, the seller may be able to keep it.

Is earnest money the same as a down payment?

No, but it becomes part of it. Earnest money goes in early, and at closing it's credited toward your down payment or closing costs.

Who holds earnest money in Illinois?

Usually a real estate brokerage, a title company or an attorney, and your contract names which one. A brokerage has to keep it in a separate escrow account under Illinois rules.

What happens to earnest money if the deal falls through?

It depends on why. If the reason is one your contract allows and you followed its notice rules on time, it's typically returned. If there's a dispute, a brokerage holding it keeps it until everyone signs a release or a court decides.

Does a lender care where earnest money comes from?

Yes. Lenders verify the source, usually with a canceled check or a receipt from the holder plus your bank statements. Paying it from your own account keeps that simple.

Can you lose earnest money on new construction?

You can. Builders often ask for a deposit too, and the CFPB suggests asking upfront under what conditions it can be returned. Read the builder's terms closely, since they're often different from a resale contract.

If there's an earnest money question you ran into that isn't here, tell me.

Last updated: November 2026

If you're about to write an offer, set up a time and we'll talk through how much earnest money you're comfortable putting on the line and which dates protect it.

Brian Wittman is a licensed real estate broker (Real Broker LLC), mortgage loan originator (NMLS #2646598, NEXA Mortgage, LLC, Equal Housing Lender), and life insurance producer (Levinson & Associates). This article is for educational purposes only and is not financial, lending, tax, or legal advice, an offer, or a commitment to lend; all loans are subject to credit approval. Information is accurate as of the publication date; for current details and full disclosures, visit https://bluejeanbroker.com/disclosures.