In a real estate transaction, a buyer may pay both a down payment and earnest money. But let me tell you, they play distinct roles. If you are also planning to buy a property, it is important to know what is earnest money vs down payment difference. While a down payment is a higher amount to be paid upfront, earnest money is a smaller amount.
Down Payment vs Earnest Money
Here are the differences between down payment and earnest money.
Earnest Money
Earnest money is a good‑faith deposit paid when signing the sales agreement to demonstrate a buyer’s genuine intent.
This amount is typically 1 to 3% of the property’s price (even up to 10% for new constructions).
It is placed in escrow with a broker, title company, or solicitor.
It secures the property off the market and gives time for inspections, appraisals, and mortgage approvals.
If agreed contingencies (like financing, inspection, or valuation) aren’t met, it is usually refunded. However, if the buyer withdraws without valid reasons, the seller may legally forfeit the EMD.
Down Payment
The down payment is the portion of the property’s price the buyer pays at closing, after loan approval.
It typically ranges from 10 to 20%, depending on the lender and loan policy.
Unlike EMD, this amount directly reduces the mortgage principal and forms part of the buyer’s equity.
It is non‑refundable and goes straight to the seller as agreed upon.
The down payment closes the financial transaction, reducing the loan and showcasing the buyer’s purchasing power. At closing, the EMD is credited against the down payment or closing costs, effectively reducing the final amount due. I hope your query is resolved.
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What is Earnest Money vs Down Payment?
ruchi
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4 months
2025-07-25T14:40:10+00:00 2025-07-25T14:40:13+00:00Comment
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