Posted by Ben Wills in Home Buying

Thinking about buying a new home? Be sure to first brush up on your knowledge and understanding of earnest money—a crucial and sometimes confusing part of any home sale.

We’re here to put your mind at ease and answer all your questions so that you feel fully equipped as soon as you’re ready to sign the contract!

  1. What Is Earnest Money?
  2. How Does Earnest Money Work?
  3. What’s the Difference Between a Builder Deposit vs. Earnest Money vs. Down Payment?
  4. Does Earnest Money Go Towards Down Payment?
  5. Is Earnest Money Refundable?
[Couple talking with a new home consultant inside a home]

What Is Earnest Money?

Earnest money (or an earnest payment) is essentially a security deposit given to a seller or builder as a promise that you are serious about buying the home.

Whether you’re the buyer or seller / builder on the other end, earnest money is an important protection so that no one in the deal walks away from the sale on a whim.

There are several names for earnest money that you may have heard:

  • House Deposit
  • Escrow Deposit
  • EMD
  • Good Faith Monies
[2 hands shaking over a new construction contract]

How Does Earnest Money Work?

Most of the time, earnest money is paid to a third-party escrow account, real estate broker, or title company via a check or a secure wire transfer. Then, your deposit remains safe in that account until closing!

If you’re purchasing a To-Be-Built home, this deposit gives builders the green light to start the project of building your new home.

[Construction supervisor and buyer talking in an under-construction home]

What’s the Difference Between a Builder Deposit vs. Earnest Money vs. Down Payment?

Just like buying a resale home, parties in the sale of a new construction home agree to apply earnest money to the buyer’s down payment or closing costs.

However, earnest money is not the same as a down payment. The down payment is due on the day you close on your new home, but the earnest money (also known as the builder deposit) is due when you sign your purchase contract.

[Young couple signing contract]

Does Earnest Money Go Towards Down Payment?

Yes! The earnest deposit on a new-build home secures your contract once its signed and serves as your down payment with the lender on closing day.

"Essentially, earnest money / builder deposit is just paying more of the down payment and closing costs upfront."

Is Earnest Money Refundable?

It depends! If there is a finance contingency in the contract, then it can be refunded.*

pro tip

Reach out to M/I Financial for more information and to discuss our loan programs so we can find the best fit for you!

[Couple at a closing meeting shaking hands with agent]

An earnest money deposit keeps both the seller’s and builder’s best interests in mind. Buying a home is a major investment, so it’s important to go about it the right way and protect yourself throughout the process!

Still have questions about buying a new home? You’re not alone! Our experts at M/I Financial can walk you through the new home financing process and help you confidently make the best decision for you.

*Finance contingencies may differ based on loan type, region of the country, and other factors. Contact M/I Financial, LLC (NMLS# 50684: for questions about contingencies.


Ben Wills
Ben Wills


​Ben Wills is the Mortgage Branch Training Officer for M/I Financial, LLC. Ben has been in the mortgage field for over 40 years and has assisted thousands of homeowners in financing new home construction.

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