One of the most common questions I get from buyers is the difference between earnest money and the down payment. Some people mistakenly use those terms interchangeably, but they are two completely different things that happen at different stages of the transaction. Understanding the difference matters, especially once you are under contract.

Let’s start with earnest money;

Earnest money is a good faith deposit that a buyer submits once the seller accepts their offer and the purchase and sale agreement is executed. The purpose is simple. It shows the seller that the buyer is serious about completing the purchase. When a seller accepts an offer, they are taking their property off the market. They are turning away other buyers and committing to a contract. Earnest money helps protect that decision while the buyer moves through inspections, financing approval, and the other steps required before closing.

In New Hampshire, that deposit is typically held in an escrow account until the transaction closes, and the terms governing it are outlined in the purchase and sale agreement.

Earnest money is not an extra cost. In most transactions, it is credited toward the buyer’s funds at closing. That means it often becomes part of the down payment or helps cover closing costs. I know I'm aging myself ;) but think if it as "layaway."

For example, if a buyer plans to put $40,000 down and they have already submitted $10,000 in earnest money, that deposit is typically applied toward the total amount due at closing.

Now let’s talk about the down payment;

The down payment is the portion of the purchase price that the buyer contributes at the closing table toward the home itself. The rest of the purchase price is typically financed through a mortgage lender.

The amount varies depending on the loan program. VA loans can allow qualified buyers to purchase with zero down. Conventional loans often fall somewhere between three and twenty percent.

Here is the part many buyers do not realize.

The purchase and sale agreement also outlines what happens if the transaction does not move forward. If a buyer terminates the contract within a protected contingency period such as financing, inspection, or appraisal, the earnest money is typically returned. If a buyer walks away from the contract without a valid contractual reason, the seller may have the right to retain that deposit.

Real estate contracts are full of details like this, and they matter. A lot.

Every line in a purchase and sale agreement serves a purpose. Understanding how those pieces work together is part of navigating a real estate transaction successfully.

If you are buying or selling in New Hampshire and want someone who understands these contracts inside and out, I am always happy to help.

Camille Craffey -United States Marine Corps Retired

 REALTOR® Keller Williams Luxury
New Hampshire’s Antique Home Specialist