Earnest money and VA loans: What you need to know

Including earnest money with your offer can be a smart way to stand out in a competitive market. Since it functions like a small security deposit, it shows the seller you’re ready to move forward.

When you’re using VA loans, a deposit is not required, but choosing to include one can strengthen your position and support a more confident offer.

But read the fine print in your purchase agreement. If you’re not careful, you may forfeit your earnest money deposit. Understanding how earnest money works with Department of Veterans Affairs (VA) loans can protect your investment and improve your odds of submitting a winning offer.

What is earnest money?

Sometimes referred to as a good faith deposit, earnest money shows a seller you're serious about purchasing their home. In a seller's market – where buyers typically have less bargaining power – a large, up-front earnest money deposit can strengthen their offer.

Here’s what else to know when determining what earnest money is when buying a house:

• Protecting the seller’s time and money: Once a seller accepts an offer, they enter into purchase agreement negotiations with the buyer and usually take the home off the market. That pause can carry risk. If the agreement falls apart, the seller may have to relist the property, schedule additional showings, and potentially lose momentum or interest from other buyers. Earnest money helps protect the seller from potential losses if the buyer backs out for a reason that’s not covered in the purchase agreement.
• The average earnest money payment: This ranges from 1% – 3% of a home’s purchase price, although market conditions play a role. In a competitive area, buyers may offer more to signal strong interest. In a slower market, your deposit may stay closer to the lower end of that range.
• Earnest money escrow accounts: Earnest money typically sits in an escrow account while both parties work through inspections, appraisal, and financing. If the sale moves forward, your deposit is applied to your down payment or closing costs. If an inspection, appraisal, or other real estate contingencies aren’t satisfied, you can usually walk away and get your earnest money back. But if you back out for a reason not covered in the contract, the seller may be entitled to keep the funds.

Do VA loans require earnest money?

Even though VA loans don’t require earnest money, many sellers still ask for it when the market is moving fast. The deposit gives them a bit of confidence that you plan to follow through and that you’re not likely to walk away without reason. Because of that, you may be asked to include earnest money even when you are buying with a VA loan.

If you decide to offer earnest money, the VA requires that it comes directly from you. The deposit can’t be a gift or a loan. Your lender will verify the source of the funds before the deposit is applied.

Also keep in mind that some states and certain types of mortgages regularly involve earnest money deposits. For example, in Florida, earnest money is almost always included in a purchase offer.

Is earnest money refundable with a VA loan?

In many cases, earnest money is refundable. But this refundability must be written into your purchase contract. If you don’t have clear real estate contingencies in place or don’t meet contract deadlines, the seller may be entitled to keep your deposit. To protect your earnest money, make sure your offer includes conditions that allow you to request a refund if something changes.

Common contingencies include:

• Home inspection contingency: This gives you the option to back out if a home inspection uncovers significant defects. If issues arise, you can also negotiate repairs or request a price reduction. An inspection contingency simply gives you the flexibility to walk away if the problems are too substantial for you to accept.
• Appraisal contingency: Every VA loan includes an appraisal contingency. If the home appraises for less than the agreed-upon purchase price, this contingency protects your earnest money deposit. You can renegotiate the purchase price, request seller concessions, or cancel the contract without penalty.
• Financing contingency: A financing contingency protects you if your VA loan is not approved by the deadline in the contract. If that happens, you can step away from the agreement without a penalty and you can request to have your earnest money refunded.
• Home sale contingency: A home sale contingency tells the seller that you need to sell your current property before moving ahead with the new purchase. This can help with timing and budgeting, but it may make your offer less competitive in a busy market.

Should you offer earnest money with a VA loan?

Deciding whether to include earnest money in your offer depends on several practical factors. One of the first things to look at is the amount the seller expects. In some areas, a deposit is standard and the seller may have already noted a preferred amount. In other markets, the seller may be open to negotiation or may not require earnest money at all.

You should also think about the cash you have available. Earnest money must come directly from you, so it’s important to choose a number that fits within your budget. Most deposits fall in the range of 1% – 3% of the purchase price. In very competitive areas, buyers sometimes put down more and may offer up to 10% to make their offer stand out. In a true buyer’s market, where homes sit longer and sellers have fewer competing offers, you may be able to offer a smaller deposit.

Finally, review your purchase contract to understand how the earnest money can be returned to you. The agreement should specify the conditions under which you can request a refund and note situations in which the seller may retain the deposit. Clear terms give you confidence as you move forward with your VA loan and help you decide how much earnest money you feel comfortable offering.

Pros and cons of VA loans and offering earnest money

Offering earnest money can help your offer stand out, yet it is not always the right choice for every buyer using a VA loan. The deposit can reassure a seller, but it also requires you to understand how it will be handled in your contract. Taking a closer look at the advantages and the potential drawbacks can help you decide whether including earnest money makes sense for your situation.

Pros of offering earnest money

• Some sellers may require it: In competitive markets or regions where earnest money is standard practice, providing a deposit gives you access to more listings and ensures your offer meets seller expectations.
• It shows you're serious: Earnest money signals strong intent and can help your offer stand out, especially if a seller is choosing between multiple qualified buyers.
• It can be risk-free with contingencies: As long as your contract includes clear contingencies, your earnest money can be protected. If you move forward with the purchase, the deposit is applied to your down payment or closing costs.

Learn more about making an offer.

Cons of offering earnest money

• You could lose it for violating the purchase agreement: Missing deadlines for inspections, appraisals, or paperwork could give the seller the right to keep your deposit.
• You may not get it back if you walk away without a contingency: If you change your mind or want to withdraw for reasons not listed in your contract, the seller may retain the earnest money.
• Nonrefundable earnest money deposits may be common in competitive markets: Some sellers ask for them to reduce risk. While this may strengthen your offer, it also creates financial pressure if unexpected issues arise.

The bottom line: VA loans and earnest money

VA loans give eligible buyers a strong path to homeownership, and earnest money can be one more tool to help you present a compelling offer. What matters most is knowing how the deposit is handled and what your contract allows.

With the right protections in place, earnest money can be applied to your closing costs or returned to you if the deal falls through. Understanding these details puts you in a stronger position as you prepare to buy a home.

Ready to start your VA home loan application? Begin the approval process today with Rocket Mortgage.

Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

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