Ever wondered why you are asked for money twice when you buy a home in San Antonio? You hear “earnest money” early, then “down payment” again at closing, and it can feel confusing. You want to protect your budget, strengthen your offer, and avoid surprises. In this guide, you will learn what each payment does, how Texas contracts treat them, what is typical in Bexar County, and how to plan your cash to close with confidence. Let’s dive in.
The basics in Texas
Earnest money
Earnest money is a buyer’s good‑faith deposit under the purchase contract. In Texas, it is usually delivered to a neutral escrow holder, most often a title company, and kept in an escrow account until closing. If the sale closes, earnest money is credited toward your cash to close. The rules for delivery, handling, and disbursement are set by the Texas Real Estate Commission’s contract forms. You can review the TREC One‑to‑Four Family Residential Contract on the official site to see how these items are addressed in the form contract language.
Down payment
Your down payment is the portion of the purchase price you bring to closing to reduce the amount you borrow. The amount is set by your lender’s program and underwriting rules. It appears on your closing statement and must meet your lender’s documentation standards. For a basic overview, the Consumer Financial Protection Bureau explains down payments in plain language in its Ask CFPB guide.
Option fee in Texas
Texas contracts often include a separate option fee. This is a nonrefundable payment to the seller that gives you the unrestricted right to terminate during the negotiated option period. The option fee is not the same as earnest money, and the seller typically keeps it if you use your option to terminate. Buyers commonly pay both an option fee and earnest money.
Key differences at a glance
- Purpose
- Earnest money: shows good faith and creates consequences if you breach without a valid termination right.
- Down payment: the equity you bring to the deal at closing as required by your lender.
- When you pay
- Earnest money: shortly after the contract’s effective date, by the deadline written in the contract.
- Option fee: within the timeframe tied to the option period.
- Down payment: at closing.
- Who holds the funds
- Earnest money: escrow agent or title company.
- Option fee: seller.
- Down payment: paid through the settlement statement to the seller as part of the proceeds.
- How it appears on closing paperwork
- Earnest money is shown as a credit to you on the Closing Disclosure.
- Down payment appears as buyer funds at closing. The CFPB’s overview of the Closing Disclosure shows where these items appear.
Timelines in San Antonio and Bexar County
- Earnest money delivery. The TREC contract requires delivery to the escrow agent within a set number of days after the effective date. That number is negotiated in each offer. In practice, many offers use a short window, often 1 to 5 business days.
- Option period and fee. Buyers negotiate the option period length. In many Texas markets, 5 to 10 days is common, though shorter or longer periods are used based on market conditions. The option fee is paid to the seller per the contract.
- At closing. Your earnest money is applied to your cash to close. You then bring the remaining down payment funds, as well as any closing costs, per your lender’s instructions.
How much should you plan for?
- Earnest money. In many Texas resale transactions, buyers negotiate either a flat dollar amount or a percentage of the price. Ranges often fall between a few hundred and several thousand dollars, and for mid to higher price points, 1 percent of the purchase price is common in competitive situations.
- Option fee. In Texas practice, option fees frequently range from about $100 to $500. Many San Antonio agents see $100 to $300 for typical resale homes, with higher fees used to strengthen offers.
- Down payment. Your loan type determines the minimum. FHA programs often allow a 3.5 percent minimum. Eligible VA borrowers may have 0 percent down options. Conventional programs can start around 3 percent for certain buyers, with many choosing 10 to 20 percent to build equity and potentially avoid private mortgage insurance. Your lender will confirm the exact minimums for your situation.
These figures depend on price point and market temperature. Always align the amounts with your budget and your lender’s approval, and verify current local expectations before you write an offer.
Refunds, contingencies, and disputes
- When you can get earnest money back
- If you terminate using a valid contract right, such as during the paid option period, your earnest money is typically refundable under the contract. The option fee is usually kept by the seller.
- If a contract contingency applies, such as a financing contingency or a title issue, and you meet the notice and timing rules, earnest money is typically returned to you.
- If the seller fails to perform as required, you may be entitled to a refund per the contract.
- When the seller may keep earnest money
- If you breach the contract without an applicable termination right, the seller may be able to retain the earnest money under the contract’s default and remedies provisions.
- If there is a dispute
- The escrow agent follows the contract and written escrow instructions. If there are conflicting demands, the escrow holder may require a joint written release signed by both parties or may file an interpleader. Title companies have procedures for these situations.
The most important protection is timing and documentation. Deliver notices in writing within contract deadlines, and keep receipts for deposits and termination notices.
How earnest money and down payment fit together
Think of earnest money as an early piece of your cash to close. It applies at closing toward your down payment and allowable costs.
Example on a $300,000 home:
- You negotiate and deposit $3,000 in earnest money.
- Your chosen loan requires a 5 percent down payment, which is $15,000.
- At closing, your $3,000 earnest money is credited. You bring the remaining $12,000 for the down payment, plus any closing costs your lender has estimated. Your Closing Disclosure will show the full breakdown and the earnest money credit.
Lender and title requirements
- Source of funds. Lenders typically require bank statements and documentation for both earnest money and down payment funds. Large or recent deposits must be explained.
- Chain of custody. If you paid earnest money by check or wire, be ready to provide copies or receipts. Your lender and title company will match these to your file.
- Title escrow. Title companies hold earnest money in a trust account and disburse only as allowed by the contract, by mutual written release, or by court order.
Offer strategy in Bexar County
- Be competitive, not overextended. A larger earnest deposit or faster delivery can strengthen your offer, but do not tie up so much cash that you struggle to meet the down payment or reserves your lender requires.
- Use the option period wisely. A shorter option period or a higher option fee can be persuasive to a seller, but make sure you have time to complete inspections and review results.
- Coordinate with your lender on day one. Tell your lender when and how you paid earnest money, and send proof promptly to avoid underwriting delays.
- Keep everything in writing. Save check images, wire confirmations, escrow receipts, and termination notices. Meeting contract deadlines protects your refund rights.
If you want a plain‑English overview of closing forms and timelines, the CFPB’s consumer pages on down payments and the Closing Disclosure are helpful. For the contract framework that governs earnest money, review the TREC One‑to‑Four Family Residential Contract. For state‑level consumer resources, you can also explore Texas REALTORS.
Ready to talk through earnest money and down payment for your specific price range and neighborhood in San Antonio? Reach out for a tailored plan that fits your lifestyle and your loan strategy. Connect with Bruce X Forey to get started.
FAQs
What is the difference between earnest money and an option fee in Texas?
- Earnest money goes to escrow as a good‑faith deposit and is often refundable under certain contract rights, while the option fee is paid to the seller for the right to terminate during the option period and is typically nonrefundable.
How much earnest money should a San Antonio buyer offer?
- Many offers use a flat amount in the low thousands or around 1 percent of price in competitive situations, but the exact number is negotiated and should reflect market conditions and your budget.
Does earnest money count toward my down payment at closing?
- Yes, earnest money is credited to your cash to close, which reduces the remaining down payment and allowable closing costs you need to bring.
If I back out during the option period, do I get my earnest money back?
- If you terminate within the option period according to the contract, your earnest money is typically refundable, and the seller usually keeps the option fee.
If my loan falls through, can I get my earnest money back in Texas?
- If your contract includes a financing contingency and you deliver notices within the required timelines, earnest money is typically returned to you per the contract.
What happens if the seller refuses to release earnest money after I properly terminated?
- The escrow agent may require a joint written release or may pursue an interpleader; speak with your agent, title company, or an attorney for guidance on dispute procedures.
How does earnest money affect my total cash required at closing?
- It reduces the cash you need at closing because it is applied as a credit toward your down payment and allowable costs on the Closing Disclosure.
What documentation will my lender ask for regarding earnest money and down payment?
- Expect bank statements, proof of deposit or wire, and gift letters if applicable; large or recent deposits must be documented and explained.
What are typical Texas timelines for delivering earnest money?
- The contract sets the delivery deadline as a number of days after the effective date, often negotiated as a short window like 1 to 5 business days in practice.
Is earnest money refundable if inspections uncover problems?
- If you are within the option period and follow the contract’s termination process, you can usually cancel and receive the earnest money back, while the seller keeps the option fee.
