What Is Earnest Money, and How Does It Work in Indiana?

Published On: April 27, 2025|Categories: Real Estate|

If you’re buying a home in Jasper, Evansville, or anywhere else in Dubois County, you’ll likely hear the term earnest money early in the process. It’s one of those real estate terms that confuses a lot of first-time buyers—but it’s actually pretty simple once you break it down.

This guide explains the following:

What earnest money actually is
How much earnest money is typical in Indiana
When you pay it and where the money goes
What happens to your earnest money if the deal falls through
How to protect your earnest money

Here’s a closer look at each.

What Earnest Money Actually Is

Earnest money is a good faith deposit made by the buyer to show they’re serious about purchasing a home. It’s submitted when you make an offer, and it becomes part of your official purchase agreement if the seller accepts.

Think of it as a promise to move forward in the deal. If everything goes as planned, the money is applied to your down payment or closing costs at the end. But if you back out for a reason not covered by the contract, the seller may be able to keep it.

In a competitive market like Huntingburg, earnest money can help your offer stand out. It shows you’re committed—and ready to follow through.

How Much Earnest Money Is Typical In Indiana

There’s no state-mandated amount, but most buyers in Indiana offer between 1% and 3% of the purchase price as earnest money. That means:

On a $200,000 home, you might offer $2,000 to $6,000
On a $300,000 home, your deposit could range from $3,000 to $9,000

The exact amount depends on the market, how competitive the property is, and what you and your REALTOR® decide makes the most sense.

Too low, and the seller may see your offer as weak. Too high, and you may be putting more money at risk if the deal doesn’t go through.

When You Pay It And Where The Money Goes

Earnest money is usually paid within a few days of the seller accepting your offer. Your real estate agent will walk you through the timeline, but most purchase agreements specify a deadline for submitting the deposit.

You’ll either:

Write a personal check
Provide a certified or cashier’s check
Or send a wire transfer

The money is then deposited into an escrow account, typically held by the listing brokerage, title company, or real estate attorney. It’s kept there until closing.

At closing, the earnest money is applied toward your total cash to close. That could mean reducing your down payment or covering part of your closing costs.

What Happens To Your Earnest Money If The Deal Falls Through

What happens depends entirely on why the deal falls through—and what the contract says.

You’ll get your earnest money back if:

The home doesn’t pass inspection and you back out under the inspection contingency
The appraisal comes in too low and there’s an appraisal contingency in place
Your loan isn’t approved and you have a financing contingency
You simply follow the terms of the contract, and the seller fails to meet them

You could lose your earnest money if:

You miss deadlines without communicating
You get cold feet and walk away without a valid reason
You breach the terms of the contract in any way

That’s why it’s critical to work closely with your REALTOR and stick to the contract timelines. In towns like Ferdinand or Newburgh, where smaller markets can move fast, staying organized really matters.

How To Protect Your Earnest Money

Here are a few tips to make sure your deposit stays protected:

Include contingencies in your offer—inspection, financing, and appraisal
Stick to your deadlines for inspections, loan approval, and paperwork
Get everything in writing—never rely on verbal agreements
Work with an experienced REALTOR who will help you follow the contract exactly
Read your purchase agreement—especially the sections on cancellations and contingencies

Your agent will also make sure your earnest money is held by a neutral third party—not the seller—and that it’s clearly documented.

If something does go wrong, both buyer and seller must sign a release of earnest money. If either party refuses, the funds may be held until the issue is resolved or taken to mediation. It’s rare, but it’s one more reason to follow the process carefully.

FAQ About Earnest Money In Indiana

Check out these commonly asked questions about earnest money. If you don’t see your question here, please call our office and we’ll find you the answers you need.

Is Earnest Money The Same As A Down Payment?

No. Earnest money is a deposit you make early in the process to show you’re serious. Your down payment is paid at closing and goes toward your mortgage.

Can I Get My Earnest Money Back If I Change My Mind?

Only if your reason is protected by a contingency in your contract. If you just change your mind for no reason, you risk losing the deposit.

Who Holds The Earnest Money?

Usually a title company, brokerage, or attorney holds the funds in a secure escrow account until closing or cancellation.

Can I Offer More Earnest Money To Make My Offer Stronger?

Yes, and in competitive markets, a higher earnest money deposit can give you an edge. Just make sure you’re comfortable with the risk if the deal falls apart.

Does Indiana Have Laws About Earnest Money?

Indiana doesn’t set a required amount, but real estate brokers must follow strict rules for how it’s handled and reported. Your REALTOR can walk you through how it works in your situation or direct you to info from IN.gov if needed.

Earnest money is just one part of buying a home—but it’s an important one. With a knowledgeable REALTOR by your side, you’ll understand how to use it to strengthen your offer while staying fully protected. Whether you’re buying in Santa Claus or anywhere else in Dubois County, you’ll be ready to make your move with confidence.

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