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Down Payment vs. Earnest Money

How much do you need and when do you need it?

If you have researched buying a home, you already know you need to save for your down payment.

The earnest money will be part of your down payment, but that part will need to be paid at the time you write the offer. How much will you need? Earnest money deposits are usually 1% of the offer price, but amounts can vary from as low as $500 to as high as $5,000 – depending on the house you want to buyer. Be prepared to have that earnest money check cashed within two days of your offer being accepted.

The earnest money deposit will be credited toward your down payment and your closing costs when you close on the house.

The total down payment you need can also vary, depending on the loan product you choose from your mortgage lender.

There’s still a common myth that you need to come up with 20% of the total sale price for your down payment. This means people who actually meet the criteria to buy a home may be putting their plans on hold because they don’t have that much in the bank yet. The reality is – whether it’s your first home or you’ve purchased one before – you most likely don’t need a 20% down payment. Here’s why.

According to Freddie Mac:

“The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”

If saving that much money sounds daunting, potential homebuyers might give up on the dream of homeownership before they even begin – but they don’t have to. 

The 2020 Profile of Home Buyers and Sellers from the National Association of Realtors (NAR) notes how the median down payment hasn’t been over 20% since 2005, and even then, that was only for repeat buyers, not first-time homebuyers. 

What does this mean for potential homebuyers?

If you’re a first-time buyer and putting down 7% still seems high, DON’T WORRY! Our team can connect you with lenders who have programs that allow qualified buyers to purchase a home with a down payment as low as 3.5%. There are also options like VA loans and USDA loans with no down payment requirements for qualified applicants.

It’s important to know you likely won’t need a 20% down payment, but you do need to do your homework to understand the options available. When you’re interested in learning more about down payment assistance programs, information is available through sites like Be sure to also work with trusted professionals from the start to learn what you may qualify for in the homebuying process.

Bottom Line

Don’t let down payment myths keep you from hitting your homeownership goals. If you’re hoping to buy a home this year, let’s connect to review your options.

Rebecca Lowrey

Realtor/Team Lead

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