"Earnest Money is negotiable but it shows the seller that you are serious."

- Jen Corso

Earnest Money Explained:

What Every Homebuyer Needs to Know

If you're thinking about buying a home, you've probably heard the term "earnest money" during the homebuying process. For many first-time buyers, this can be confusing.

Questions like:

• How much earnest money do I need?

• Do I get the money back?

• Is earnest money the same as a down payment?

• What happens if the deal falls through?

If you're buying a home in Illinois, understanding earnest money can help you feel more confident when it's time to make an offer.

Let's break it down.

👉 Quick Answer: What Is Earnest Money?

Earnest money (sometimes called a good faith deposit) is money a buyer deposits after their offer is accepted to show the seller, they are serious about purchasing the home.

The money is typically held in an escrow account until closing and is eventually applied toward the buyer's down payment and/or closing costs.

Think of earnest money as the buyer saying:

"I'm serious about buying your home and I'm committed to moving forward."

👉 Is Earnest Money the Same as a Down Payment?

No.

This is one of the biggest misconceptions among homebuyers.

Earnest Money Down Payment

Paid shortly after the offer is accepted Paid at closing

Shows the seller you're serious Required by your mortgage lender

Held in escrow Applied directly toward the purchase

Usually credited back to you at closing Part of your total cash to close

😀The good news is that earnest money is generally credited toward your down payment or closing costs at closing, so it's not an additional expense.

👉 How Much Earnest Money Do Buyers Typically Put Down?

There is no one-size-fits-all amount.

In Illinois, earnest money deposits often range from approximately 1% to 3% of the purchase price, although the amount can vary depending on market conditions and how competitive the situation is. In multiple-offer situations, buyers sometimes choose to offer a larger deposit to strengthen their offer.

Example:

• $300,000 home = $3,000 to $9,000 earnest money

• $500,000 home = $5,000 to $15,000 earnest money

Your real estate agent can help you determine an amount that makes sense for your situation and local market conditions.

👉 Where Does the Earnest Money Go?

The seller does not immediately receive your earnest money.

Instead, the funds are typically held in an escrow account by a neutral third party until the transaction closes or is terminated. Depending on the transaction, this could be:

• A real estate brokerage

• A title company

• A real estate attorney

The escrow holder and delivery instructions should be clearly identified in the purchase contract.

👉 Do You Get Your Earnest Money Back?

Usually, yes—provided you follow the terms of the contract.

Many purchase contracts include contingencies that protect buyers, such as:

• Home inspection contingency

• Financing contingency

• Appraisal contingency

• Attorney review contingency (common in Illinois)

If you cancel the contract for a reason covered by one of these contingencies, you will typically receive your earnest money back.

👉 When Could You Lose Your Earnest Money?

A buyer may risk losing earnest money if they back out of the contract without a valid contractual reason.

Examples might include:

• Simply changing your mind after contingencies have expired

• Missing important contract deadlines

• Failing to comply with contract terms

Every contract is different, so buyers should carefully review all contingency deadlines with their agent and attorney.

Earnest Money in Illinois: What Buyers Should Know

In Illinois, earnest money is not legally required, but it is standard practice in most residential real estate transactions. The purchase contract will specify:

• The amount of earnest money

• Who will hold the funds

• When the funds must be delivered

• Under what circumstances the money may be refunded or released

Illinois buyers also benefit from an attorney review period, which provides additional protections during the early stages of the contract process.

Is Earnest Money Different in the City of Chicago?

The basic concept of earnest money is the same throughout Illinois, including within the city of Chicago.

However, in the Chicago area, buyers may notice a few local customs:

1. Attorney Involvement Is Very Common

Real estate attorneys are heavily involved in residential transactions throughout the Chicago area. As a result, earnest money may sometimes be held by an attorney, title company, or brokerage escrow account, depending on the agreement.

2. Multiple Earnest Money Deposits May Be Used

In some Chicago-area transactions, buyers may provide an initial earnest money deposit and then make an additional deposit after attorney review or inspection periods are completed. This is a local practice that varies by transaction and market conditions.

3. Competitive Markets May Require Stronger Deposits

In highly competitive neighborhoods within Chicago, larger earnest money deposits may sometimes help strengthen an offer, although there is no required amount.

Regardless of whether you're buying in Chicago, Batavia, or elsewhere in Illinois, the terms regarding earnest money should always be clearly spelled out in your purchase contract.

👉 Common Questions About Earnest Money

Can I Buy a Home Without Earnest Money?

While it's possible, many sellers expect some amount of earnest money because it demonstrates a buyer's commitment to the transaction.

How Do I Pay Earnest Money?

Earnest money is commonly paid by:

• Personal check

• Certified check

• Cashier's check

• Wire transfer

Your contract will specify where and when the funds must be delivered.

➡️ Many lenders want a paper trail of where the earnest money is coming from. Your checking account for example. You usually can't just pull it out from under your mattress.

What Happens to Earnest Money at Closing?

At closing, your earnest money is usually credited toward your down payment and/or closing costs.

The Bottom Line

Earnest money is an important part of the homebuying process because it shows sellers, you're serious about purchasing their home.

Understanding how earnest money works can help you make stronger offers and avoid surprises during the transaction.

For some of my buyers, if they were buying a $250,000 home, they have put down $1,000 to $2500 down for earnest money. I try to keep my new homebuyers from coming out of pocket. Sellers can negotiate and counter to put more earnest money down. I've also had buyers buying condos for $725,000 in downtown Chicago. They have put down $10,000 for earnest money then once the inspection is done; they put up another $10,000.

If you're considering buying a home in or around the greater Chicago suburbs, having an experienced real estate professional on your side can help you confidently navigate every step of the process.

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The Author is Jennifer Corso - Realtor and Life Insurance Agent. This article is for educational purposes and based on Jennifer Corso’s professional experience.