Earnest Money vs. Down Payment in Virginia

Buying in Arlington often moves fast, and the terms can blur together. If you are comparing offers or planning your budget, the difference between earnest money and a down payment can feel confusing. You want to be competitive without putting your funds at risk. In a few minutes, you will understand how each works in Virginia, what amounts are common in Arlington, and how to protect your money from contract to closing. Let’s dive in.

Earnest money vs. down payment

Here is a simple side-by-side to ground your planning.

How earnest money works in Virginia

Escrow holder and timing

After your offer is accepted and the contract is ratified, you typically have a set number of business days to deliver your earnest money deposit. In Virginia, contracts often call for delivery within 1 to 5 business days. The funds go to a named escrow holder, commonly a title company, settlement agent, attorney, or a broker’s escrow account.

During contingencies

Your earnest money stays in the escrow account while you complete inspections, appraisal, financing approval, and document reviews. If you cancel within a stated contingency and follow the contract’s procedures and timelines, your earnest money is usually refundable. Keep close track of deadlines to preserve your rights.

At closing

At settlement, the title or settlement agent credits your earnest money toward your cash to close. You will see the deposit listed as a credit on the closing disclosure or settlement statement. It is not an extra fee. It becomes part of the purchase price you already owe.

If there is a dispute

If the parties disagree about a refund, the escrow agent will typically hold the funds until both sides sign a release or a court or other authorized process directs disbursement. Title and escrow companies have outlined procedures for disputed escrow funds, including possible interpleader.

Down payment basics by loan type

Your down payment comes from your chosen loan program and the negotiated purchase price. Common options include:

• FHA loan: minimum down payment often 3.5 percent for qualified borrowers, subject to HUD and FHA rules.
• Conventional loan: some programs allow as low as 3 percent for eligible buyers. A 5 percent down payment is common, and 20 percent is the typical threshold to avoid private mortgage insurance.
• VA loan: for eligible service members and veterans, many programs permit 0 percent down.
• USDA loan: some programs permit 0 percent down in qualifying rural areas. Arlington is typically not eligible.

Lenders will document the source of your funds. Large deposits may require additional paperwork, and gifted funds may need a gift letter. Ask your lender early how they will treat your earnest money and down payment during underwriting.

Arlington numbers: turning percentages into dollars

Arlington often sees higher purchase prices, so it helps to translate percentages into realistic figures.

For a 600,000 dollar purchase:

• 1 percent earnest money: 6,000 dollars
• 2 percent earnest money: 12,000 dollars
• 3.5 percent down payment: 21,000 dollars
• 20 percent down payment: 120,000 dollars

For an 800,000 dollar purchase:

• 1 percent earnest money: 8,000 dollars
• 2 percent earnest money: 16,000 dollars
• 3.5 percent down payment: 28,000 dollars
• 20 percent down payment: 160,000 dollars

These examples show how fast totals add up in Arlington. Use them to plan liquidity, confirm wire limits with your bank, and set a competitive but comfortable earnest money amount.

How much earnest money in Arlington

There is no single required dollar amount. Across many markets, earnest money often falls around 1 to 3 percent of the purchase price, and competitive areas sometimes see higher deposits. In Arlington’s low-inventory segments, larger deposits can help your offer stand out. You can write a flat number or a percentage in the contract, and you can tailor the deposit to your risk comfort and timeframe.

Local factors that influence the deposit size include market speed, whether you are competing with cash, how short your contingency periods are, and whether you are waiving any contingencies. A larger deposit signals commitment, but you should only increase it if your contract provides clear protections and you are confident in your financing and due diligence.

Protecting your earnest money

A clear contract and good process are your best safeguards.

• Name the escrow holder and set a specific deposit deadline, such as within 3 business days of ratification.
• Spell out which contingencies make the deposit refundable and list the deadlines.
• Follow contract procedures for inspection, appraisal, financing, title, and any HOA or condo document review.
• Request a written receipt from the escrow holder as soon as funds are deposited and keep all confirmations.
• Track dates. If an issue arises, send timely notices as the contract requires.

Buyers who waive contingencies should understand the risk. If you back out without a contractual right to terminate, the seller may claim the deposit as liquidated damages or pursue other remedies described in the contract.

What happens if the deal cancels

• Financing contingency: If loan approval is not obtained by the contract deadline and you cancel within the terms, the deposit is typically refundable.
• Appraisal contingency: If the appraisal is short and you cancel per the clause, you usually get the deposit back.
• Inspection or repair contingency: If serious defects are found and you terminate within the process, the deposit is refundable.
• Title or association documents: If issues allow cancellation under the contract, the deposit is refundable.
• Sale-of-home contingency: If included and properly exercised, you can cancel and receive a refund.

If the seller breaches, you can typically recover the deposit and may consider other remedies described in the contract. When parties disagree, the escrow holder will hold funds until a mutual release or other authorized direction occurs.

Offer strategy in a competitive market

In Arlington’s most active neighborhoods and price bands, you want your offer to look both strong and safe.

• Consider an earnest money deposit around 1 to 2 percent as a baseline, with the option to increase if competition is intense and your protections are in place.
• Shorten contingency periods only if your lender, inspector, and title team can meet the timelines.
• Cash buyers sometimes offer smaller deposits but pair that with faster closings. Financed buyers can offset by strengthening the deposit or tightening contingencies.
• Confirm your lender’s documentation requirements so your deposit and down payment funds present cleanly during underwriting.

Where funds appear in your paperwork

Your purchase agreement will list the earnest money amount and the escrow holder by name. The contract also sets the deposit delivery deadline. At settlement, the closing disclosure or settlement statement will show your earnest money as a credit and your down payment as part of your total cash to close. This is how all funds tie together for a smooth closing.

A quick checklist for buyers

• Verify the escrow holder’s name and deposit deadline in the contract.
• Confirm refund conditions and all contingency timelines.
• Get a deposit receipt and keep bank records of fund sources.
• Ask your lender about seasoning rules and gift letters if applicable.
• Use dollar examples to right-size the deposit for the price point.
• Track contingencies and notices to protect your refund rights.

Guidance for sellers

A thoughtful review of the deposit can help you compare offers.

• Larger deposits and faster delivery often indicate stronger commitment.
• Watch for very small deposits paired with waived contingencies, which may leave you exposed if the buyer later defaults.
• Include clear remedies for buyer default, such as the option to retain the deposit as liquidated damages, and specify dispute resolution procedures.
• Require that the contract name the escrow holder and deadline, and confirm receipt quickly after ratification.

The bottom line

Earnest money shows intent and sits in escrow. Your down payment is the cash you bring to closing to reduce your loan. In Arlington, using percentages to guide your deposit and aligning timelines with real capacity will help you compete without unnecessary risk. With the right contract language and team, both funds flow cleanly on your closing statement and support a confident purchase.

Buying or selling in Arlington and want senior, concierge-level guidance on structuring deposits, contingencies, and timelines to fit your goals? Connect with Charisse McElroy to Request a Concierge Consultation.

FAQs

What is earnest money in a Virginia home purchase?

• It is a good-faith deposit paid soon after contract ratification and held in escrow, then credited toward your cash to close at settlement.

How is a down payment different from earnest money?

• Your down payment is the cash you pay at closing to reduce your loan amount, while earnest money is an early deposit that becomes a credit on your closing disclosure.

Who holds earnest money in Arlington transactions?

• A named escrow holder, often a title company or settlement agent, holds the funds in a separate insured account until closing or release.

When do I get earnest money back if I cancel?

• If you cancel within the contract’s contingencies and follow the required procedures and timelines, the deposit is typically refundable.

How much earnest money should I offer in Arlington?

• Many buyers use 1 to 3 percent of the purchase price, adjusting higher in competitive situations while keeping protections and deadlines clear.

What down payment do most loan types require?

• FHA often 3.5 percent, conventional 3 to 5 percent with 20 percent to avoid PMI, VA often 0 percent for eligible buyers, and USDA 0 percent in qualifying rural areas.

How are these funds shown on my closing disclosure?

• Earnest money appears as a credit against your cash to close, and your down payment shows as part of your total buyer contribution.

What happens if the seller and buyer disagree about the deposit?

• The escrow holder keeps the funds until both parties sign a release or a court or authorized process directs disbursement.