In the given scenario, earnest money is credited toward the down payment at closing.

In the given scenario, earnest money is credited toward the down payment at closing.

• A. It is refunded to the buyer at closing
• B. It is credited toward the down payment
• C. It is applied to closing costs
• D. It is used to cover lender charges

Answer: (B)

Earnest money is a buyer’s good-faith deposit that becomes part of the funds the buyer brings to close. When the deal closes, this amount is applied as a credit against what the buyer owes—the purchase price or the down payment—reducing the actual cash needed at closing. In other words, the earnest money isn’t paid out as a separate refund or simply used for lender charges; it offsets the buyer’s obligation to provide funds at closing. This is why the correct approach is to treat the earnest money as a credit toward the down payment, aligning with the buyer’s equity contribution at signing.

Earnest money is a buyer’s good-faith deposit that becomes part of the funds the buyer brings to close. When the deal closes, this amount is applied as a credit against what the buyer owes—the purchase price or the down payment—reducing the actual cash needed at closing. In other words, the earnest money isn’t paid out as a separate refund or simply used for lender charges; it offsets the buyer’s obligation to provide funds at closing. This is why the correct approach is to treat the earnest money as a credit toward the down payment, aligning with the buyer’s equity contribution at signing.