Earnest Money Deposit in Texas: What It Is and the Other Costs of Buying

When you write an offer on a Texas home, one of the first questions I hear is, "How much do I need to put down just to make the offer?" The honest answer is that there are several different pieces of money, and people mix them up all the time. The first one you'll meet is the earnest money deposit. Here's what it is, who holds it, when you can get it back, and the other upfront costs that show up before you ever get the keys.

An earnest money deposit is money you put up after the seller accepts your offer, to show you're serious about the purchase. It is not an extra fee. If the sale closes, your earnest money is used for your purchase. The Texas standard resale contract says that at closing, the earnest money is applied first to any cash down payment, then to your closing expenses, and any excess is refunded to you.

So earnest money isn't a separate cost, but it does have to be in the right hands on time. The Texas Real Estate Commission (TREC) form for most resale houses (TREC No. 20-19) says you must deliver it within 3 days after the effective date of the contract. If you miss the deadline, the seller can end the contract or pursue the seller's remedies under the contract, so don't wait on this step.

Is earnest money the same as a down payment?

No. Earnest money is a deposit made soon after your offer is accepted. At closing, the Texas contract applies it to your cash down payment first, then to your closing expenses, so it counts toward what you owe but isn't an extra cost.

Who holds my earnest money in Texas?

The escrow agent named in your contract holds it. The form has a blank for the escrow agent's name and address, and payment is made out to that escrow agent. Check your own contract for the name.

Can I get my earnest money back?

Sometimes. Under the TREC contract, you get it back if you terminate within your option period, and in certain other situations such as unresolved lender-required repairs. If a buyer defaults, the seller may keep it. Your contract's addendums and deadlines control the details.

What is the option fee, and do I get it back?

The option fee pays for your right to terminate during the option period. If you terminate in that period, the option fee goes to the seller. If you close, it's credited to the sales price.

Does the seller ever pay my closing costs?

The Texas contract has a blank for an amount the seller will contribute toward your expenses. Whether a seller agrees, and how much your loan type allows, is a negotiation. Loan limits on seller help are covered in my FHA vs. conventional article.