Fannie Mae Guidelines: Earnest Money Deposit Requirements

How Earnest Money Works in Your Mortgage Application

Your earnest money deposit serves as more than just a good faith gesture to the seller. Fannie Mae allows you to count this money toward your down payment and closing costs, which can help you meet the cash requirements for your loan.

Say you put down $5,000 in earnest money when you made an offer on a $300,000 home. If you need $15,000 total for your down payment, that earnest money reduces what you need to bring to closing to $10,000. The lender treats it as part of your invested funds in the transaction.

When Lenders Must Verify Your Earnest Money Source

The verification requirements depend on whether your earnest money counts toward your minimum contribution requirement. This matters most for low down payment loans where every dollar of your own money counts.

If you're putting down 5% on a conventional loan and using earnest money as part of that 5%, the lender must verify where those funds came from. They need to confirm the money came from an acceptable source under Fannie Mae guidelines, not from a cash advance or borrowed funds that would increase your debt load.

For loans where you have plenty of assets beyond the minimum requirements, lenders may not need to dig as deep into the earnest money source.

Required Documentation for Earnest Money Verification

The lender needs two types of documentation to satisfy Fannie Mae requirements.

First, they need proof of the source. This means bank statements covering at least two months before you wrote the earnest money check. The statements must show your average balance was large enough to support the deposit amount. If you wrote a $5,000 earnest money check, your account needs to show it could handle that withdrawal without going negative.

A Request for Verification of Deposit (Form 1006) can substitute for bank statements. This form goes directly to your bank and asks them to confirm your account balances over the past two months.

Second, they need proof the money actually changed hands. You provide either a copy of your canceled earnest money check or a written statement from whoever is holding the deposit. This could be the seller's real estate agent, an escrow company, or a settlement attorney.

If you used a cashier's check or wire transfer for earnest money, the bank statements must cover the period through when that transaction cleared your account.

Why These Rules Exist

Fannie Mae requires this documentation because earnest money represents a significant cash outlay that affects your overall financial picture. They want to ensure you actually had the money and didn't borrow it from an undisclosed source.

The two-month lookback period helps catch situations where someone might have temporarily boosted their account balance just to write the earnest money check. Consistent account balances over time show genuine financial capacity.

The receipt requirement prevents situations where borrowers claim they made an earnest money deposit but the funds never actually left their control.

Common Issues That Complicate Earnest Money Verification

Large earnest money deposits draw extra attention from underwriters. If you put down $20,000 in earnest money in a market where $2,000 is typical, expect additional questions about the source and your motivation.

Deposits that exceed local customs also get scrutiny. In some markets, 1% of the purchase price is standard earnest money. In others, buyers routinely put down 3-5%. Amounts well above local norms may trigger additional verification requirements.

If your bank statements don't clearly show where the earnest money came from, you'll need additional documentation. This happens when you transfer money between accounts right before writing the earnest money check, or when you use funds from multiple sources to cover the deposit.

Timing issues can create problems too. If you wrote the earnest money check but your bank statements don't cover the period when it cleared, you'll need to provide additional statements or other proof of the transaction.

Special Considerations for Different Deposit Holders

The receipt documentation varies depending on who holds your earnest money. Real estate agents typically provide a simple written statement confirming they received your deposit and the amount. Escrow companies and settlement attorneys usually have more formal procedures and documentation.

Some sellers hold earnest money directly, though this is less common. In these cases, you need a written receipt from the seller or their representative.

If the earnest money is held in an interest-bearing escrow account, any interest earned typically belongs to you and can also count toward your closing funds, though you'll need documentation of the interest amount.

Virtual Currency and Earnest Money

Fannie Mae has specific restrictions on virtual currency that affect earnest money deposits. If you used cryptocurrency or other virtual currency to fund your earnest money, additional requirements apply under guideline [[B3-4.1-04]].

The key point is that virtual currency cannot be used directly for earnest money. You must first convert it to traditional currency, and the conversion must be properly documented with the required seasoning period.

References

For the official guidelines, see B3-4.3-09: Earnest Money Deposit in the Fannie Mae Selling Guide.