You've found the home. You walked through the rooms and pictured your kitchen table by the window. Now, your agent says it's time to make an offer. This is a question that trips up many first-time buyers: how much money should you put down before you even own the place? For the approximately 8.2 million U.S. residents of Polish ancestry who responded to the 2022 American Community Survey — accounting for around 2.5% of the population — this moment may be particularly perplexing if the concept of a deposit for a home purchase operates differently from how it did in their home country.
Here's the short version: When you make an offer on a property, you usually send a deposit to show the seller that you are serious about buying. This money is known as 'earnest money' in the industry, and it isn't a fee or a scam — it's part of your actual purchase price. According to Freddie Mac's 2025 consumer guidance, earnest money typically amounts to 1% to 5% of the purchase price. For a home priced at around the median existing-home sales price of $417,500 reported by the National Association of Realtors in September 2026, 1% to 3% would equate to approximately $4,175 to $12,525.
That's real money. So let's talk you through exactly what it is, where it goes and when you'll get it back.
Key takeaways
- According to Freddie Mac's 2025 guidance, earnest money typically amounts to 1–5% of the purchase price.
- Your deposit usually sits in an escrow account until closing, rather than in the seller's pocket.
- According to Fannie Mae's Selling Guide (SEL-2022-04, May 4, 2022), earnest money can count toward your down payment and closing costs.
- Whether or not the earnest money is refundable depends on the contingencies written into your purchase agreement.
- The CFPB's 2021 statement sets out principles for serving consumers with limited English proficiency.
Table of Contents
What is earnest money?
Think of it as a promise backed by cash. When you sign a purchase agreement — the contract between you and the seller — you pay a deposit. This deposit is sometimes called 'earnest money' or a 'good faith deposit'. It shows the seller that you are a committed buyer and not someone who will change their mind at the last minute.
So, what does earnest money do for you in real estate? It strengthens your offer. When a seller is choosing between two buyers, they often trust the one who has put real money on the table. The seller takes the property off the market for you, and it is your deposit that gives them the confidence to do so.
Now, a point that relieves a lot of worry: the money is not necessarily lost, though it may be forfeited if you fail to perform in good faith under the contract. If everything goes as planned, it gets applied to what you owe at closing. Fannie Mae's Selling Guide B3-4.3-09, tied to announcement SEL-2022-04 of May 4, 2022, permits earnest money to go toward your down payment and closing costs, with the deposit's receipt verified by a canceled check or a written statement from whoever holds it. In plain terms, your earnest money isn't an extra cost. It's an early installment on money you were going to pay anyway.
Where your deposit sits until closing
You don't hand cash to the seller. This is one of the biggest concerns buyers raise, but it's almost always unfounded when the deal is done properly.
Instead, your earnest money is placed in an escrow account — a neutral holding account managed by a third party such as a title company, escrow company or real estate brokerage, depending on your location. The holder is generally expected to keep this money separate from their own funds and release it only according to the contract, though the exact rules depend on your state and on who holds the deposit.
State rules enforce this. The Illinois Real Estate License Act, administered by the Illinois Department of Financial and Professional Regulation, requires licensed individuals to hold escrow funds in a separate account and to only release them in accordance with written instructions, a signed contract or a court order (Illinois General Assembly, 2025). This is an Illinois rule, and it is important because the Chicago metropolitan area is home to around 729,368 people of Polish ancestry, according to the 2020–2024 American Community Survey five-year estimates. Other states have their own versions of this rule, so ask your agent who holds the deposit and under what law.
One thing to keep clear, because the word "escrow" gets used two ways. The account holding your purchase deposit is different from the mortgage-servicing escrow account that pays your property taxes and homeowners insurance later. RESPA's Regulation X § 1024.17 defines that servicing escrow account as a separate thing (Consumer Financial Protection Bureau, 2024). Same word, two jobs.
Is earnest money refundable? It depends on your contract.
This is where people can get hurt, so make sure you read this carefully.
Whether or not your earnest money is refundable depends on the contingencies written into your purchase agreement. A contingency is a condition that must be met for the deal to proceed — if it isn't met, this usually allows you to cancel the deal and get your deposit back.
The most common ones are:
- An inspection contingency allows you to withdraw from the sale if the home inspection reveals serious problems.
- A financing contingency will protect you if your mortgage application is unsuccessful.
- An appraisal contingency protects you if the property is valued at less than the agreed purchase price.
Imagine you've saved for three years and found a two-bedroom condo, but the inspection reveals a cracked foundation. If you have an inspection contingency clause in your contract, you can usually cancel the sale and recover your deposit. However, if you cancel for a reason not covered by a contingency — for example, if you simply change your mind — the seller may be entitled to keep the money. This is the trade-off that gives earnest money its meaning.
Read through all the terms and conditions and deadlines before you sign. If the contract is only in English and English is not your first language, ask for time to have it translated before signing — never afterward.
Deals do fall apart. According to the September 2026 REALTORS® Confidence Index, published on October 13, 2026, the National Association of Realtors reported that 7% of contracts were terminated during the preceding three months and that 16% had delayed settlement, including 5% of contracts delayed because of appraisal issues. It is your contingencies that determine whether a collapsed deal will cost you your deposit.
Veterans, take note of one special rule. The VA Escape Clause protects your earnest money if you invoke it because the contract price exceeds the VA's established reasonable value. However, builder deposits for upgrades are not covered by that clause (U.S. Department of Veterans Affairs, 2022).
Why the paper trail matters more than you think
Lenders care about the source of your funds. It's not to pry — it's about proving that the funds are truly yours and not from an undisclosed loan.
According to Fannie Mae's Selling Guide B3-4.2-02, which is associated with announcement SEL-2022-10 dated December 14, 2022, a large deposit is defined as a single deposit that exceeds 50% of your total monthly qualifying income. When making a purchase, if those funds are needed for the transaction, the lender must document an acceptable source for them or reduce your verified funds by the undocumented amount, so check with your lender about what applies to you. Therefore, if a large sum of money is deposited into your account shortly before you make a purchase, you should be prepared to demonstrate its origin.
This can be more difficult for some families. If relatives are helping, as families of any background sometimes do when buying a first home, that gift needs paperwork. For FHA loans, HUD's 2024 gift documentation guidance requires a signed gift letter stating the donor's identity and relationship to the recipient, the amount of the gift, and confirmation that it is not a loan, as well as evidence of the transfer. Cash on hand is not an acceptable source of donor gift funds. Any money kept outside of a bank generally needs to be deposited and documented ahead of time rather than taken out of a drawer at closing, so ask your lender how far in advance it must be in your account.
Keep your statements, canceled checks and any gift letters. The underwriter, who is the person at the lender who approves your loan, will ask for them.
How your deposit shows up at closing
When you reach the end of the process, you will receive a Closing Disclosure — a standard federal form listing every dollar in the transaction. Your earnest money will be listed there, working in your favor.
According to 12 CFR § 1026.38, the Closing Disclosure lists your deposit in Section L and displays it as a negative figure in the cash-to-close calculation (Consumer Financial Protection Bureau, 2023). A negative number here is a good thing — it means that the money has already been counted toward what you owe, so you need to bring less cash on closing day. If part of your deposit has already paid a closing charge prior to closing, that amount will appear next to the relevant charge as 'borrower-paid before closing'.
Check these numbers against your contract. If the deposit on the disclosure document does not match what you paid, ask about it before you sign. For context, the CFPB complaint database recorded 2,051 complaints in the category "Closing on a mortgage" in 2025, which is an increase from 1,427 in 2024. However, it should be noted that complaint counts are not a representative estimate of all consumer experiences. The lesson is not to panic. It's to review your numbers carefully.
When English Isn't the Language You Think In
A purchase agreement is a legally binding contract. Signing one that you don't fully understand can result in you losing your deposit.
There is a real reason to take this seriously. A study by the Urban Institute found that households with limited English proficiency were 7.1 percentage points less likely to own their homes than English-proficient households, once household and location factors had been taken into account (Urban Institute, 2023). This association is evident across many communities, and while it is not specific to the Polish community, it highlights a significant barrier.
There's also a cautionary tale. In 2023, the DOJ and the CFPB alleged that a Texas land developer had marketed its properties primarily to Spanish-speaking individuals, but had only provided important transaction documents in English. In 2026, the DOJ announced a settlement, while the CFPB dismissed its claims with prejudice. The allegations did not constitute a finding of liability (DOJ and CFPB, 2026). The moral of the story is that different language does not mean different risk: you can be sold in your language but still be committed to terms in another.
On January 13, 2021, the CFPB issued a statement addressing the principles for serving consumers with limited English proficiency, in a manner that is consistent with applicable laws. Separately, on July 17, 2026, HUD publicly announced the withdrawal of its 2016 Fair Housing Act guidance on limited-English-proficiency protections, effective September 25, 2025. HUD stated that the withdrawn guidance should not be relied upon as authoritative. As rules in this area are subject to change, it is advisable to ask lenders or agents directly what language support they offer.
Community organizations can help, too. The Polish American Association provides assistance to immigrants in the Chicago area, and the Polish & Slavic Center provides social and legal services in New York. However, its listed services are not a verified earnest-money or mortgage counseling program. According to the same American Community Survey estimates, the New York metropolitan area has roughly 654,046 residents reporting Polish ancestry.
Do you need a Polish agent who speaks Polish? Heritage Web can put you in touch.
Your next steps
Earnest money is not a gamble. It's a structured and documented part of the process of buying a home: your deposit is held in escrow, can count toward your down payment and closing costs, and the terms of the contract determine whether you get it back if the deal falls through. The buyers most at risk of losing money are those who sign the contract without reading it or miss a deadline.
Before making your next offer, make sure you know who holds the deposit, confirm your contingencies and keep every receipt and bank statement. If anything in the contract is unclear, make sure you fully understand it before you sign.
Get in touch with a Polish agent who speaks your language and understands your culture. Submit your details via Heritage Web's secure referral form.
This article is general information, not legal, tax or financial advice. Rates, rules and programs change; talk to a licensed real estate agent, lender or insurance agent about your situation.
Sources
- Selling Guide B3-4.3-09
- REALTORS® Confidence Index
- Selling Guide B3-4.2-02
- Urban Institute
- National Association of Realtors
- VA Escape Clause
- Polish American Association
- Closing Disclosure
- Polish & Slavic Center
- Consumer Financial Protection Bureau
- Real Estate License Act
- Freddie Mac
- 12 CFR § 1026.38