Earnest money essentially works as an assurance to the seller for his consideration of the buyer’s offer. It demonstrates the buyer is serious about following through with the deal and shows they are a strong candidate for buying the home.
There is no set rule for the earnest money amount. The amount is highly negotiable, and often depends on whether it is a buyer’s market or a seller’s market at the time. Typically, it’s about 1% to 3% of the sale price.
The earnest money goes to the down payment and closing cost when the deal goes through. The money stays at escrow or title company until the closing date. Therefore, you can assume it is part of the down payment.