What is the term for a good-faith deposit made when purchasing a home?

The term for a good-faith deposit made when purchasing a home is earnest money.

Earnest money is paid by a prospective buyer to show the seller that the offer is serious. It is usually submitted after the seller accepts an offer and a purchase contract is signed, although exact timing and procedures vary by location and contract terms.

The deposit is commonly held in escrow or another form of trust account by a real-estate broker, attorney, title company, or settlement agent. If the sale closes, the money is generally credited toward the buyer’s down payment or other closing funds. If the contract ends under an agreed contingency, such as an unsuccessful inspection or financing failure, it may be returned to the buyer.

Earnest money is not the same as a down payment: the down payment is a much larger portion of the purchase price paid at closing. Escrow describes the holding arrangement or account, while closing costs cover transaction expenses such as fees, taxes, and insurance. If a buyer breaches the contract without contractual protection, the seller may be entitled to keep the deposit.