Buying in Houston and hearing a lot about earnest money? You are not alone. If you are a first‑time buyer or relocating to Harris County, that deposit can feel confusing, especially when timelines and contingencies come into play. In a few minutes, you will know what earnest money is, how it differs from the option fee, when it is refundable, and how it is credited to you at closing. Let’s dive in.
Earnest money basics in Texas
Earnest money is a good‑faith deposit that shows a seller you are serious. In Texas, the amount and handling are set by your purchase contract, most often using TREC forms or REALTOR association forms. If your purchase closes, the deposit is credited toward your down payment and closing costs.
Earnest money vs. option fee
In Texas, you typically pay both an earnest money deposit and a separate option fee. The option fee buys you an option period for inspections, and it is usually nonrefundable. Earnest money is held in escrow by a title company and can be refundable under certain contract terms, such as a timely termination during the option period or a valid financing contingency.
Who holds the deposit
In Houston, title companies usually hold earnest money in an escrow account. Your contract names the escrow agent and sets a deadline for delivering the funds. Always make the check or wire payable to the named title company, not to the seller or an agent, and get a receipt.
Typical amounts in Houston
Earnest money is negotiable. Sellers want an amount that signals commitment, and buyers want to protect their funds. In Houston and across Harris County, common ranges vary by price band and market conditions.
- Entry level, roughly under 250,000 dollars: often 500 to 2,500 dollars, about 0.25 to 1 percent of price.
- Mid‑range, about 250,000 to 500,000 dollars: often 1,000 to 5,000 dollars, about 0.5 to 1 percent.
- Higher priced, about 500,000 to 1 million dollars: often 5,000 to 25,000 dollars, sometimes about 1 percent or more.
- Luxury and high competition, over 1 million dollars: 1 to 3 percent or higher is common.
These are practice norms, not rules. Submarkets around the Inner Loop and west Houston can move fast, which can push deposits higher. In slower segments, offers sometimes land on the lower end of these ranges.
How much should you offer
Ask your agent about current norms in your exact neighborhood and price point. If a listing is drawing multiple offers, some buyers increase earnest money, shorten option periods, or adjust other terms to stand out. In many cases you can keep the deposit reasonable and strengthen your offer with cleaner timelines, flexible closing, and responsive communication.
When it is refundable
Refundability depends on the exact contract terms and whether you meet the deadlines and notice requirements. Here are the most common paths to a refund in Texas contracts.
Option period termination
If you terminate in writing within the option period and follow notice procedures, your earnest money is typically returned. The option fee you paid to the seller is usually nonrefundable unless the contract states it will be credited at closing.
Financing contingency
If your contract includes a financing contingency and your lender denies the loan within the required timeline, you can usually terminate and receive a refund, provided you deliver the proper notices and any required documentation on time. If you miss deadlines, the deposit can be at risk.
Title or survey objections
If a title or survey issue arises and the seller does not cure within the contract window, you may terminate under the contract and recover your deposit. Timely written notice is key.
Seller breach
If the seller breaches the agreement, such as failing to deliver marketable title or failing to close as required, you may be entitled to a refund under the contract’s remedies.
When it is usually not refundable
- You terminate after the option period for reasons not covered by another contingency.
- You waive contingencies, then cannot close.
- You fail to meet notice or documentation deadlines in the contract.
Escrow process and closing
Understanding how the money moves will help you avoid avoidable mistakes.
Deposit timing and receipts
Most contracts require you to deposit earnest money within a few business days after the effective date. Deliver the funds to the named title company, get an escrow receipt, and keep it with your records. Late deposits can create disputes.
Credit at closing
If you close, the earnest money appears on your settlement statement as a credit toward closing costs or your down payment. It reduces the cash you need to bring to closing.
If the deal cancels
If the transaction terminates and both parties sign a written release, the title company disburses funds per the release. Without a mutual release, the escrow holder follows the dispute process described in the contract.
Disputes and documentation
If buyer and seller disagree about who gets the funds, the escrow holder may require a written release or hold the funds until the matter is resolved by agreement or court order. Keep clear records of deposits, notices, and lender communications so you can establish your rights if needed.
Wire safety for deposits
Wire fraud targets earnest money. Protect yourself with a few simple habits:
- Get wire instructions only from the title company, ideally via a secure portal or written letterhead.
- Verify instructions by calling the title company using a known phone number, not one from an email.
- Confirm the account name matches the title company and verify the last four digits before sending.
- Send during business hours and alert your escrow officer so they can confirm receipt.
- Keep your confirmation and the escrow receipt.
Strategy for Houston buyers
Strong offers balance risk and appeal. Before you write, align your earnest money with your overall terms.
- Ask what deposit amounts are customary in your target area today.
- Decide whether to use an option period and, if so, how long you need for inspections.
- Understand what financing protections are common and which ones you are comfortable with.
- Confirm the exact deposit deadline and escrow holder details so funds arrive on time.
- If a seller wants more earnest money, consider alternatives like a slightly higher price, a shorter closing, or faster inspections.
- Know what documentation you will need if you rely on a financing contingency or title objection.
Real‑world examples
- Example A: You offer roughly 1 percent earnest money, pay an option fee, inspect, and terminate within the option period. Your earnest money is returned, and the seller keeps the option fee unless otherwise agreed.
- Example B: You offer a sizable deposit and waive the option period, then discover issues not covered by any contingency. If you try to terminate, your earnest money may be at risk.
- Example C: Your lender denies the loan within the financing contingency timeline, you provide the required notice and documentation, and you terminate. Your earnest money is typically refunded.
Quick buyer checklist
- Confirm the earnest money amount that fits your offer strategy.
- Decide on option period length and fee with your agent.
- Review financing protections and documentation requirements.
- Deposit funds on time and obtain an escrow receipt.
- Track all deadlines and send notices in writing.
- Verify wire instructions by phone to avoid fraud.
- Keep all records for your file and closing.
Final thoughts
Earnest money is a key part of a winning offer in Houston. When you size the deposit appropriately, meet your deadlines, and use contingencies wisely, you protect your funds and present a confident, credible offer.
If you want a steady, expert guide from offer through closing, we are here to help. For tailored advice on neighborhoods, offer strategy, and a streamlined path to closing, connect with Arriaga Realty LLC.
FAQs
What is earnest money in Texas home purchases?
- It is a good‑faith deposit held by a title company under your contract. If you close, it is credited to your costs, and if you terminate under specific terms, it can be refundable.
How is the option fee different from earnest money?
- The option fee buys your inspection option period and is usually nonrefundable, while earnest money sits in escrow and may be refundable if you terminate under the contract.
How much earnest money is typical in Houston?
- Many offers land around 0.5 to 1 percent, with lower fixed amounts on entry‑level homes and higher percentages on luxury or highly competitive listings.
Can I get my earnest money back if my loan is denied?
- If your contract includes a financing contingency and you deliver required notices and documentation within deadlines, you can usually receive a refund.
Where do I send the earnest money and when?
- Send it to the title company named in your contract within the stated timeframe, often a few business days after the effective date, and obtain an escrow receipt.
What happens to earnest money if there is a dispute?
- The title company generally requires a written mutual release or will hold the funds until a court or agreed process decides who is entitled to them.
