Earnest Money vs. Down Payment in Minnesota

Buying your first home in Saint Paul? You are not alone if earnest money and down payment feel like the same thing. They both involve real cash, but they do very different jobs at different times. Understanding each one helps you write stronger offers, protect your deposit, and plan your cash to close with confidence. Let’s dive in.

Earnest money vs. down payment: the difference

Earnest money is your good faith deposit after your offer is accepted. It shows the seller you are serious. It is held in escrow while the deal moves through inspections, appraisal, and financing, then credited to you at closing.

Down payment is the portion of the price you pay at closing that becomes your equity. It is the difference between the purchase price and your loan amount. Once you close, it is not refundable.

Why both? Earnest money protects the seller during the contract period and signals your readiness. The down payment meets your loan requirements and sets your loan-to-value and mortgage insurance needs.

How Minnesota purchase agreements handle both

In Minnesota, standard purchase agreements spell out the earnest money amount, who holds it, when you must deposit it, and the contingency deadlines. Your specific contract controls the timing and rules, so review those sections carefully.

Who holds the earnest money

Your agreement will name the escrow holder. In Saint Paul, it is commonly the listing broker, your broker, or a title company. Funds are kept in a trust or escrow account under fiduciary rules.

When you deposit in Saint Paul

Contracts typically require you to deliver earnest money shortly after acceptance. In the Twin Cities, a common practice is within 1 to 3 business days, but the exact deadline is negotiable. Confirm the form of payment your escrow holder accepts before you send funds.

How funds apply at closing

At closing, the title or escrow company credits your earnest money toward your cash to close. It can reduce your down payment and or your closing costs. You bring the remaining funds based on your loan and the final closing statement.

Common contingency windows

• Inspection period often runs about 7 to 10 days.
• Financing or loan commitment deadlines often run 21 to 30 days.
• Appraisal timing usually tracks the financing contingency.

Meeting deadlines protects your right to recover earnest money if you cancel for a valid contingency reason.

When you get earnest money back

You typically recover earnest money if you cancel within the protections written into your contract and follow notice rules. Common refundable scenarios include:

• You cancel during the inspection period per the agreement.
• Your financing is denied and you properly exercise the financing contingency on time.
• Title defects are not cured and your contract allows termination.
• The seller fails to meet a contingency obligation that provides a termination right.

When earnest money can be forfeited

Earnest money is at risk if you default after contingencies are satisfied or waived. Examples include:

• You remove contingencies and later fail to close.
• You waive inspection or financing and then try to cancel.
• Your contract includes a liquidated damages clause that limits the seller’s remedy to keeping the earnest money.

If there is a dispute over who gets the deposit, the escrow holder may keep funds until both sides agree to a release. If the dispute continues, it may require a settlement or court process to resolve.

Saint Paul norms: amounts and offer strategy

Earnest money amounts in Ramsey County vary by price point and competitiveness. Common practice ranges from flat sums of a few thousand dollars on entry-level homes to 1 to 3 percent of the price on higher tiers. In hot neighborhoods or multiple-offer situations, buyers sometimes raise the deposit or shorten contingencies to stand out.

That strategy can work, but it raises your risk of losing the deposit if problems arise. Keep contingencies in place until you are comfortable with the condition of the home, the appraisal results, and your financing.

Down payment expectations by loan type

• Conventional loans often allow as little as 3 percent down for some conforming programs. Many buyers target 20 percent to avoid private mortgage insurance.
• FHA typically requires 3.5 percent down for eligible buyers.
• VA and USDA can offer 0 percent down for eligible borrowers.
• Minnesota Housing and local programs may provide lower-down-payment mortgages or down payment assistance. Amounts and rules change, and programs have income and price limits.

Planning your cash flow

Getting your cash timing right will keep your transaction smooth and your deposit protected.

Cash to close and credits

Your earnest money is credited toward your total cash to close at settlement. It can offset your down payment and closing costs. Plan for the remaining funds you will need on closing day based on your loan estimate and closing disclosure.

Documentation your lender will request

Lenders verify the source of your earnest money and down payment. Expect to provide bank statements, evidence of any gift funds with a gift letter, and a clear paper trail. Avoid moving large sums between accounts right before closing, and hold off on big purchases or new credit.

A simple Saint Paul checklist

• Get pre-approval to confirm your minimum down payment and total cash to close.
• Discuss a competitive but safe earnest money amount with your agent based on the neighborhood.
• Keep inspection, appraisal, and financing contingencies until you are comfortable with the risk.
• Keep funds in traceable accounts and ask your escrow holder which payment forms they accept.
• Ask your loan officer what documentation they need for both deposits.

Local assistance in Ramsey County

Many first-time buyers in Saint Paul use help from Minnesota Housing, Ramsey County, or the City of Saint Paul HRA. These programs may offer grants, deferred loans, or second mortgages that can be layered with your primary loan. Because availability, income limits, and timelines change, contact program administrators and a local lender early. Some assistance requires pre-approval before you make an offer.

Risks and how to protect yourself

• Risk: Losing earnest money by missing deadlines or removing protections too soon.
  • Protection: Track all contingency dates and extend them in writing if needed.
• Risk: Waiving inspection or appraisal and uncovering issues later.
  • Protection: Use contingencies unless you fully accept the risk and have cash reserves.
• Risk: Loan delays due to unverified funds or last-minute account changes.
  • Protection: Keep a clean paper trail and work with a lender who knows local programs.
• Risk: Confusion about who holds the deposit and acceptable payment types.
  • Protection: Confirm the escrow holder, amount, and deposit method in your offer.

Next steps for Saint Paul buyers

Clarify your loan program, align your earnest money with local norms, and protect yourself with clear contingencies and deadlines. Work with a local team that understands Ramsey County norms, title workflows, and assistance programs so your deposit and down payment plan stay on track. If you want tailored guidance and a step-by-step plan for your Saint Paul purchase, connect with the Ewing Real Estate Group for a friendly, expert consult.

FAQs

In Minnesota, does earnest money count toward my down payment?

• Yes. At closing, your earnest money is usually credited toward your down payment and or closing costs.

If my financing falls through, do I get my earnest money back?

• If your contract contains a financing contingency and you follow its notice and timing rules, earnest money is typically refundable when a lender denies the loan within the contingency period.

How much earnest money should I offer in Saint Paul?

• It depends on price point and competitiveness. Many buyers offer a flat amount or 1 to 3 percent of the price, but you should set it based on neighborhood conditions and your risk tolerance.

Can a seller keep my earnest money after inspection in Minnesota?

• If you cancel within the inspection period under the contract terms, you generally recover your deposit. If you cancel after removing the inspection contingency, your earnest money may be at risk.

What documents will my lender need for my deposit and down payment?

• Expect to provide bank statements, source-of-funds documentation, and gift letters if applicable. Lenders verify and may season funds, so keep a clear paper trail.

What happens if there is a dispute over earnest money?

• The escrow holder may retain funds until both parties sign a release or a settlement is reached. If unresolved, it may require a formal process, such as interpleader or court action.