Earnest Money on a USDA Loan: Is It Required?
Earnest money isn’t required by USDA loan guidelines, but many sellers and real estate agents do expect buyers to include an earnest money deposit with their offer to show they’re serious about buying the home.
The amount is negotiated between the buyer and seller and documented in the purchase agreement, but the USDA doesn’t set a minimum deposit or require buyers to provide a particular percentage of the purchase price.
Even though USDA loans can finance 100% of a qualifying home’s purchase price, earnest money can still play an important role in making an offer more competitive. Buyers should also understand how the deposit is handled at closing, when it may be refunded, and which contract protections can help reduce the risk of losing it.
An earnest money deposit is money a buyer submits after a seller accepts the offer. It shows the buyer intends to move forward with the purchase.
In many cases, the deposit is delivered to an escrow agent, title company, real estate brokerage, or attorney, depending on local practice. It is usually held in an escrow account until the sale closes or the contract is terminated according to its terms.
Earnest money is not the same as a down payment. Sellers may want added assurance that a buyer will not walk away from the transaction without a reason allowed by the contract.
The purchase contract usually spells out:
These are generally contract terms rather than USDA loan requirements, and they are typically governed by the purchase agreement and applicable state law.
Yes, you can still use a USDA loan without earnest money since USDA guidelines do not require a specific earnest money deposit, so a buyer may be able to use a USDA loan without one. In practice, though, many sellers still expect earnest money with an offer.
If a seller receives an offer with no earnest money, it may look less attractive, especially in a competitive market. A reasonable deposit can help show that the buyer is committed to completing the inspection period, moving through financing, and working toward closing.
Even when a loan allows 100% financing, the buyer still has to negotiate a purchase contract that the seller is willing to accept.
