What happens to earnest money at closing? Under Fannie Mae’s Selling Guide, the deposit written into the sales contract can count as an acceptable source of funds for both the down payment and the closing costs. That treatment comes from the guide’s own topic on the deposit.
The same guide hands the lender two jobs. It wants to see where the deposit money came from, and it wants proof that the deposit was received. Both are documentation checks.
Then there’s the paperwork. The CFPB’s explainer for the Closing Disclosure lists the borrower’s deposit among the amounts already paid at closing. Those two sources cover the deposit from different sides, and each leaves questions worth taking to a loan officer.
Does Earnest Money Count Toward Your Down Payment?
Fannie Mae’s Selling Guide topic on the earnest money deposit treats the deposit written into the sales contract as an acceptable source of funds for the down payment and for the closing costs. Under that topic, a buyer’s deposit can count toward both. One deposit, two places it can be applied.
The guide’s sentence starts with “The deposit on the sales contract (earnest money)” and calls it “an acceptable source of funds for both the down payment and the closing costs.”
The Selling Guide is written for lenders that sell their loans to Fannie Mae, so it describes those loans. A different lender or a different loan program may handle a deposit differently. The guide also names no deposit amount, so ask your agent and your loan officer what applies to your purchase.
What Does the Lender Check About the Deposit?
Fannie Mae’s guide sets out three checks on the deposit. The first is where the money came from. The second is proof the deposit was received. The third is a closer look at a deposit that’s large, or above what’s customary for the area.
If the deposit goes toward the borrower’s minimum contribution, the guide says “the lender must verify that the funds are from an acceptable source.” For that, the guide looks for bank statements or a verification of deposit showing that the average balance for the past two months was large enough to support the deposit.
For receipt, the guide accepts “a copy of the borrower’s canceled check or a written statement from the holder of the deposit.” So the guide gives two ways to show receipt.
Size matters to the guide too: “Large earnest money deposits and deposits that exceed the amount customary for the area should be closely evaluated.” No figure sits behind the word large there, so how a lender would judge a particular deposit is a question for a loan officer.
Where Does Earnest Money Show Up at Closing?
On the paperwork side, the CFPB’s closing disclosure explainer walks through a section of the Closing Disclosure headed Paid Already by or on Behalf of Borrower at Closing. Your deposit is listed there, with the amount you’re borrowing and any credits from the seller or a service provider.
The explainer describes that section this way: “It includes the amount you are borrowing, the amount of your deposit, and any rebates or credits paid by the seller”. The sentence goes on to name third-party service providers.
One wording note: the explainer says deposit, and not earnest money. So ask your loan officer to point to the deposit line on your own form. The explainer also adds “It does not include the amount you have to bring to closing”. That figure sits separately, under Cash to Close.
For the math on that separate figure, see how cash to close differs from your down payment.
Is Earnest Money Refundable?
That depends on your sales contract, not on the loan rules above. If a sale is cancelled because the loan didn’t come through, the contract’s financing contingency clause is the place to look. A real estate agent or an attorney can read it with you.
The guide’s subject is narrow. It speaks to where deposit funds come from and how receipt gets shown. A question about getting the deposit back isn’t one it answers, and guessing at the answer wouldn’t help you.
If your loan is part of the question, what happens if your loan misses the mortgage contingency deadline covers the deadline in more detail.
What to Bring to Your Loan Officer About the Deposit
Between them, the two sources cover how a lender counts the deposit, how it gets verified, and where it lands on the closing paperwork. They don’t give a deposit amount, a deadline or a refund rule. For those, ask your agent, your attorney or your loan officer.
Fellowship’s mortgage process page describes what its team looks at: “We holistically assess income, debt-to-income ratio, credit score, employment trajectory, and property type to determine eligibility.” It adds: “Each loan program has different sets of eligibility guidelines.”
Fellowship’s home purchase page puts it this way: “Depending on your circumstances, one home loan may be better than another.” That’s why questions about your deposit are worth talking through with a loan officer.
Frequently Asked Questions About Earnest Money
What is earnest money?
In Fannie Mae’s Selling Guide it’s the deposit on the sales contract, with earnest money in parentheses. The guide treats that deposit as an acceptable source of funds for the down payment and the closing costs. The guide names no amount.
What happens to earnest money at closing?
Under Fannie Mae’s guide, the deposit can count toward both the down payment and the closing costs. On the paperwork, the CFPB explainer lists your deposit among the amounts already paid on the Closing Disclosure. The amount you bring to closing shows separately, under Cash to Close.
Do you get earnest money back?
That depends on your sales contract. If the sale is cancelled because the loan didn’t come through, look at the contract’s financing contingency clause, and have a real estate agent or an attorney read it with you.
Does the lender check where my deposit came from?
When the deposit goes toward the borrower’s minimum contribution, Fannie Mae’s guide says the lender has to verify that the funds come from an acceptable source. Bank statements or a verification of deposit carry that proof, and your loan officer can tell you what your file needs.
What proof of the deposit does a lender need?
Fannie Mae’s guide accepts either a copy of the borrower’s canceled check or a written statement from whoever holds the deposit. That’s how receipt gets verified in the lender’s file. Which one fits your purchase is worth asking your loan officer.
Can a large deposit raise questions?
Fannie Mae’s guide says large earnest money deposits, and deposits above the amount customary for the area, should be closely evaluated. It leaves the figure open. So ask your loan officer how a deposit of your size would be judged on your purchase.
Questions to Bring to Your Loan Officer
A deposit is simplest to handle when the records are already in hand. The guide’s checks are about paper: where the funds came from, and proof that the deposit landed. Walk into that conversation with questions rather than guesses, and bring the sales contract along.
- Which of my accounts should the deposit come from, and what will the lender need to see to verify it?
- What proof of receipt does the lender want, and who holds the deposit?
- Where will the deposit show on my Closing Disclosure?
- Would the size of my deposit draw a closer look?
When you’re ready, you can talk with a Fellowship loan officer about your purchase loan and your deposit.
This is general education about what Fannie Mae’s Selling Guide and the CFPB say, not legal, lending or financial advice, and not a commitment to lend.
