What Is a Good Faith Deposit?

What is a Good Faith Deposit

Table of contents

A good faith deposit in a real estate transaction is an amount of money that is offered to the home seller as an act of intent to buy. This amount is offered to the seller and set aside in escrow as a signal that the buyer is serious about purchasing the home. It is typically used as a part of the down payment when the sale goes through, though it is not the same thing as a down payment.

Key takeaways

  • A good faith deposit is offered to show intent to buy, often part of down payment.

  • Offer around 5% of home price, but amount can vary.

  • Contingencies protect both parties if transaction can’t be completed.

  • Protect investment with help from real estate agent or lawyer, ask questions, review disclosures, and ensure contingencies are in place.

  • Contact Hero Home Programs™ for expert help with appraisers, inspectors, and grants to save money.

What is good faith deposit money?

Good faith deposit money is also known as “earnest money.” It is money laid down specifically to show the home seller that you’ve got skin in the game. It is a separate amount from the down payment, which is the amount of money the lender requires for a loan. By offering a good faith deposit, you are demonstrating to the seller that you won’t walk away from the deal.


Good faith deposit


Do you need a good faith deposit money?

It depends. A good faith deposit is not strictly necessary for buying a home. But earnest money can make you stand out among other buyers if you are vying for your dream home amidst competition. This is especially true in a seller’s market.


How much earnest money is needed?

A good rule of thumb is offering 5% of the home price as a good faith deposit. This should be enough to cover costs for the seller if you should walk away from the deal. For example, if you are buying a house for $300,000, then an appropriate amount of earnest money would be $15,000. Generally, the higher you can go, the better, especially in a competitive market where there are more buyers than sellers.


Is a good faith deposit refundable?

Say that the close doesn’t go through for one reason or another. Do you lose your good faith deposit? Fortunately, there are contingencies in place to protect both buyer and seller from losing out if a home sale transaction can’t be completed. Let’s take a look at a few of these.


Appraisal contingency

An appraisal contingency allows the buyer to back out of the purchase if the property is not appraised at the amount of the purchase price stated in the contract. A seller may try to renegotiate and bring their price down to bring it more in line with the amount named by the appraiser. However, if an agreement cannot be reached, a buyer may back out of the deal without consequence.


Financing contingency

A financing contingency (also known as a mortgage contingency) gives the opportunity for buyers to back out of closing and reclaim their earnest money if they can’t secure financing at acceptable terms.


Home inspection contingency

A home inspection contingency states that a buyer has a specified amount of time to conduct inspections on a home. If the results of the home inspection are deemed unacceptable to the buyer, then the contract is null and void and all deposits are returned.


Contingency for selling an existing house

It can feel a bit like juggling trying to sell a house while trying to buy a new home. It’s a good idea to sell your existing home before buying a new one, but in some cases, it can’t be helped. When this happens, a home sale contingency exists to give the buyer a certain amount of time to sell their existing home to finance the new one. This contingency protects the buyer because if they cannot sell their home at their asking price, they may back out of the home sale.


Taking care of your good faith deposit money

Good faith deposits can be a significant amount of money, dependent on the price of the house. It is imperative to protect your investment by using a real estate agent or real estate lawyer for your transaction. Ask questions if there’s anything in your contract that you don’t understand. Review property disclosures (these are a requirement in most real estate markets) carefully. Make sure all contingencies are in place. Do not cave in to pressure from the seller to remove them until your loan has been approved, the house has been appraised, and an inspection has been done.

While not necessary for lenders and not always required by home sellers, a good faith deposit is an excellent way to be a competitive buyer. A seller’s market makes earnest money even more desirable and could make the difference when multiple contract options are placed in front of a seller. When planning to purchase a home, it is best practice to save a sum aside as earnest money on top of any required down payment. This will ensure you won’t get left behind when you finally find your dream home.


Contact us today!

When you are ready to house search, reach out to the experts at Hero Home Programs. They will work hard to save you money during the home buying process by setting you up with local appraisers, inspectors, and more. They will also do their best to find local grants that may be available to you. Let your Hero Home Program experts help you today.

Picture of Jacquelyn Sublett
Jacquelyn Sublett

I love teaching and writing on real estate, finance and mortgage topics. I find it fulfilling hearing stories of first time home buyers who we have helped with the home buying process. Writer for the Hero Homebuyer Programs™

Connect with the Author:

Recommended Posts

What Our Buyers Think

Jules S.
Read More
"5 star service is what you will get when you work with him!ᅠ Not only does he know his product like no other, he makes a special point of communicating throughout each transaction and his follow up skills are unparalleled. Perhaps most importantly, he delivers on his promises!ᅠ Give him a try for your mortgage needs.ᅠ You will not be disappointed!"
Jeremy H.
Read More
"An outstanding job handling refinances.  One of those knowledgeable, straight-shooters - which is really appreciated when you're shopping for a home loan. He can answer a million of questions with ease.  Looking back at the responsiveness, he was outstanding and you can do everything he suggested."
Jaina D.
Read More
"You can rely on them, very professional and quick in responding to your queries. He is very friendly and makes sure we understand the process and keeps us posted on the status of our loan. His efforts are greatly appreciated."
Eshawn W.
Read More
“By far the best lender we’ve worked with. Got us the best loan amount than any other lender. He worked with us hand in hand, he is professional, and he made the process enjoyable.”
Jaina D.
Read More
"You can rely on them, very professional and quick in responding to your queries. He is very friendly and makes sure we understand the process and keeps us posted on the status of our loan. His efforts are greatly appreciated."
Cass Z.
Read More
“I called looking for information about the process of applying for a mortgage/refinance and am just blown away with how helpful the information I received was!”
Stephanie F.
Read More
“I have hope because of you for making my home ownership dream come true. I feel such a connection with you and am excited to work with you. Have an amazing day!”
Rachel S.
Read More
"Highly ethical, attentive and helpful! A fantastic combination of personable and hard working. He makes everyone feel important and understood."
Cliff S.
Read More
“Hands down the best mortgage professional I’ve worked with in 20 years. Knowledgeable, honest, reliable and above all an outstanding communicator.”
Jose A.
Read More
"He worked on getting the lowest rate and kept me informed on each step of the process from the beginning to closing. Thank You!"
Nicholas H.
Read More
“Thank you for your prompt help and AMAZING assistance. Hands down, best lender I have ever worked with. Top notch!”
Read More
“I would be 100% interested in working more with you! You have proven to be an amazing lender”
Sandy C.
Read More
“Absolutely the most knowledgeable, friendly and honest expert I’ve ever worked with!”
Steve R.
Read More
"A pleasure to work with. He was very prompt and courteous with his responses and genuinely cares about the clients he works with."
Kevin H.
Read More
"Professional, responsive and honest assistance with the whole refinancing process from beginning to end."

We help you reach home ownership.

No catch. No hidden fees.

Have you served in the military or your community as a healthcare provider, teacher, or first responder? Are you a member of your local union or work for your city government?

Are you looking to buy a home but don’t know where to start when it comes to finding your best home financing options?

At Hero Home Programs™, our teams are dedicated to helping community heroes like you through the home purchasing process by finding the best grants, rebates, and loans in your area in order to maximize your savings and help you achieve homeownership.

Contact our team today to learn how we can and mortgages can change your life.

Resource Guides

Complete A to Z guides on your home purchase journey.

Learn about the process for getting a home loan

What steps you can take to improve your credit score

Tips and tricks for moving into your new home

Your step-by-step guide for buying a new home

Scroll to Top