What Is Earnest Money in Texas and How Much Should I Put Down?

When you make an offer on a home in Texas, two separate payments come up almost immediately: the earnest money and the option fee. They serve different purposes and carry very different consequences if the deal falls through. Here is the breakdown.

What Is Earnest Money?

Earnest money is a good-faith deposit made by the buyer to demonstrate serious intent to purchase a property. In Texas residential transactions, earnest money is held in escrow by the title company — a neutral third party — and is applied toward the buyer's purchase price or closing costs at closing. It is not paid directly to the seller. According to the RE/MAX Blog, earnest money shows the seller you are serious and helps them feel comfortable taking the home off the market during the contract period.

How Much Earnest Money Should I Put Down in Texas?

The amount of earnest money is negotiable, but general market conventions in Texas put the earnest money at approximately 1% to 2% of the purchase price. On a $400,000 home, that is $4,000 to $8,000. In more competitive markets or luxury price points, the expectation can be higher. Entry-level home earnest money typically ranges from $1,000 to $5,000, mid-priced single-family homes from $5,000 to $20,000, and higher-priced properties often see 1% or more of the purchase price as a baseline, according to buyer guides for the Austin and San Antonio markets.

When Is Earnest Money Due?

In Texas, earnest money is typically due within one to three business days of the contract's effective date — the date the last required signature makes the contract binding. The funds must be delivered to the escrow agent, typically the title company named in the contract. Delivering earnest money late has serious consequences. Under TREC contract terms, a seller can potentially have grounds to claim default if earnest money is not delivered on time, so your agent will always flag this deadline as a priority.

Is Earnest Money Refundable?

It depends on when and why the buyer terminates. If the buyer terminates the contract properly during the option period — meaning in writing, before 5:00 PM local time on the final day — the earnest money is typically returned per the contract terms and the seller retains only the option fee. Once the option period expires, terminating without a valid contractual contingency such as a financing denial or title defect puts the earnest money at risk. The seller may be entitled to it as liquidated damages.

Earnest Money vs. Option Fee: The Key Difference

The option fee is smaller, nonrefundable from the moment of execution, and buys the buyer an unrestricted right to terminate during the option period for any reason. The earnest money is larger, conditionally refundable, and sits in escrow for the seller's protection if the buyer defaults after the option period. Both are negotiable items in every Texas contract. Together, they represent the buyer's financial commitment to the deal and inform how seriously a seller views any given offer.

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