Buyer guide
What is earnest money?
Short answer
Earnest money is a good-faith deposit you include with your offer to show the seller you are serious about buying. In Michigan it usually runs 1% to 3% of the purchase price and is held in escrow, not paid to the seller directly. At closing it gets credited toward your down payment or closing costs.
Why sellers ask for it
When you make an offer, the seller takes the home off the market for you. That is a risk for them. Earnest money is your proof that you intend to follow through.
A stronger deposit can make your offer stand out. In a busy market, sellers often read a bigger check as a more committed buyer.
The money is not a fee. It is your own cash, parked safely, that you will use later in the deal.
Think of it as skin in the game. By putting real dollars on the line, you are telling the seller you will not walk away on a whim. That trust is what gets your offer taken seriously.
How much earnest money do you need in Michigan?
There is no legal minimum in Michigan. Most buyers put down 1% to 3% of the price, so on a $300,000 home that is roughly $3,000 to $9,000.
The right number depends on local competition and what the seller expects. Your agent will know what is customary in your county.
Who holds the money?
You never hand earnest money straight to the seller. It goes to a neutral third party and sits in a trust account until closing.
Where the deposit sits
- A title company - common in most Michigan transactions
- A real estate brokerage - held in the broker's trust account
- A closing or escrow agent - a licensed neutral party
This arrangement is a form of escrow. The holder cannot release the funds to either side until the contract terms are met.
When do you get earnest money back?
Your purchase agreement lists contingencies. These are the conditions that protect you and let you walk away with your deposit intact.
- Financing contingency - your mortgage falls through despite a good-faith effort
- Inspection contingency - the inspection reveals problems you cannot accept
- Appraisal contingency - the home appraises below the agreed price
Miss a deadline or back out for a reason not covered, and the seller may keep the deposit. Read every date in your contract.
If everything goes to plan, the money simply rolls into your costs at the closing table. It is never lost in a normal, completed sale.
Disputes do happen. If both sides claim the deposit, the escrow holder cannot just pick a winner. The money stays put until you and the seller agree in writing or a court decides.
How earnest money fits your total cash
Earnest money is part of the cash you bring to buy, not an extra charge on top. It counts toward your down payment or closing costs.
Plan it alongside your other funds. Our home affordability calculator can help you see the full picture before you write an offer.
Frequently asked questions
Is earnest money the same as a down payment?
No. Earnest money is a deposit that shows good faith when you make an offer. It later counts toward your down payment or closing costs, but the two are separate parts of the deal.
Can I lose my earnest money?
You can if you break the contract for a reason not covered by a contingency, or miss a key deadline. If you cancel under a valid financing, inspection, or appraisal contingency, you normally get it back.
How do I pay earnest money in Michigan?
Usually by personal check, cashier's check, or wire to the title company or brokerage holding it. Never wire funds without confirming instructions by phone, since wire fraud is a real risk.
Is earnest money required in Michigan?
It is not required by law, but nearly every seller expects it. An offer without a deposit is far weaker and rarely competitive. Learn more in our Michigan home-buying guide.