If you are looking to buy your dream home in Texas, then you should do everything to have it. Now, one of the most effective approaches to achieve this is using earnest money.

Now, the question is, “How much earnest money is required in Texas?”

In this article, we will share all the information that you may need to make a well-informed decision and make the home-buying process a lot easier.

How Much Earnest Money is Required in Texas?

earnest money is required in texas

What Is Earnest Money in Texas Real Estate

In real estate, the earnest money is a deposit that shows the seller that you are serious about buying their home. Either your broker or attorney holds this payment in an escrow account until closing.

If you default on the contract for any reason, then the seller gets to keep this deposit. If everything goes according to plan, and you close on the property, then this deposit will apply to your down payment and closing costs.

What Is the Average Earnest Money Amount in Texas

How much you have to put down for earnest money when buying a home in Texas mostly depends on the price of the property. A general rule of thumb for homebuyers in the state is to set aside money that is equivalent to one to three percent of the purchase price.  

So, earnest money could be $5,000 or $50,000 in Texas if you buy a property that is worth $500,000 or $5,000,000, respectively.

However, you may still negotiate with the seller and put down a lower amount for earnest money. But then again, this will also depend on how badly the seller wants to get rid of their property and how many other buyers are interested in it.

So, how much earnest money is required in Texas? The answer ultimately depends on various factors, but mainly the price of the property and the competition in the area you are buying in.

Why Does Earnest Money Matter When Buying a House in Texas?

There are two primary reasons earnest money matters when you buy a home in Texas.

First, it helps determine how strong your offer is. If you put down a higher earnest money deposit, then this will show the seller that you are really interested in purchasing their home.

Second, it gives you more negotiating power with the purchase price and other aspects of the contract. For example, if you have already put down $20,000 in earnest money and the seller wants to increase the price by $30,000, then you can use this deposit as leverage to get them to lower their asking price.

The Best Time to Put Down Earnest Money

Ideally, put down the earnest money as soon as you have accepted an offer from the seller. This is a good way to let the seller know you are locked in the purchase, and they will be more likely to take your offer seriously.

However, if you need some time to come up with the earnest money or if you want to include it in your loan, then you can negotiate with the seller and agree on a later date.

Keep in mind, that the sooner you put down the earnest money, the better. This is because, once you have an accepted offer, the seller can still entertain other buyers who may be interested in their property.

You may want to make sure that your offer is accepted. Then, it is best to put down earnest money as soon as possible.

Is Earnest Money Regulated by Texas Law?

No, Texas law does not regulate the earnest money that you give. This means that there are no set rules on how much you have to put down for such payment or when you have to do it. It is ultimately up to you and the seller to agree on an amount and a timeline that works for both of you.

Remember that the sooner you put down earnest money, the better your chances of having your offer accepted.

How Is Earnest Money Paid

There are a few ways to pay Texas real estate earnest money when buying a home. You can pay it in cash, write a check, or use a credit card.

If you choose to pay in cash, then you will have to deliver the money to the seller or their agent directly. If you write a check, make sure that it is payable to the right party. This could either be the seller or their broker.

As for the use of a credit card, you will need to get pre-approval first. This is because most credit cards have limits on how much you can charge in a single transaction.

It is your convenience and preference that will dictate how you pay your earnest money.

Reviewing an Earnest Money Contract

Before you sign anything, it is important to review the good faith earnest money agreement form. This document should include all the relevant details about the transaction. Including the purchase price, the deadline for the earnest money deposit, and how the money will be used.

It is also important to note that this contract is binding. This means that if you back out of the deal, then you could lose your earnest money deposit. So, make sure that you are 100% committed to buying the property before signing anything.

Will You Be Able to Get Your Earnest Money Back?

In Texas, the seller has the option to keep the earnest money if they cancel the deal. That is, for a valid reason. They can also keep it if you, as the buyer, breach the contract.

Some of the most common reasons a seller would cancel a deal include the following.

  • The buyer cannot get financing within the specified time frame.
  • The property cannot appraise for at least the purchase price.
  • The buyer backs out of the contract without a valid reason.

If everything goes smoothly and both parties close on the property, then the earnest money will be applied towards your down payment.

How a Financial Advisor and Real Estate Agent Can Help

When determining how much earnest money is required when buying a home in Texas, then a financial advisor and real estate agent can definitely help.

A financial advisor, in particular, will assess your financial situation and capacity to come up with the funds for the deposit. They can also help you determine how much you can afford to pay for a home.

Meanwhile, a local real estate agent will provide insights into how much earnest money is typically required in Texas. They can also help you negotiate with the seller. They can negotiate to get a lower purchase price or a later deadline for the deposit.

Earnest Money FAQs

Q: What if I don’t have enough money for a down payment and earnest money?

A: If you don’t have enough money for both, you can ask to apply your earnest money towards the down payment. This is known as an “earnest money credit”.

Q: Can I use a personal loan to pay for my earnest money deposit that Texas home sellers require?

A: Yes, you can use a personal loan to finance your earnest deposit. Just make sure that you compare interest rates and terms first to get the best deal possible.

Q: What is the difference between earnest money and a down payment?

A: The earnest money is a deposit that you make to show the seller that you are serious about buying the property. The down payment is the money that you pay at closing to complete the purchase of your home.

Q: Can I buy a home in Texas without paying earnest money?

A: While you are not required to pay earnest money, most sellers will not accept an offer without one. This is because the earnest money serves as a show of good faith on your part.

Final Thoughts

Now that you know how much earnest money is required in Texas, and when you have to make the payment, you are one step closer to buying your dream home in this wonderful state.

Just remember to review the contract carefully before signing anything. Also, to always consult with the professionals if you have questions. They will be more than happy to help you through the process.

For more tips and information that you can use in buying your home, check out the rest of our articles!


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About the Author: Ashley Edwards