Also called “good-faith money,” earnest money is a deposit made in addition to the down payment to reassure the seller that you’re serious about purchasing a property. According to Trulia, “both the buyer and the seller want to make sure the deal goes through, and an earnest money deposit helps give the deal solid footing.”
This deposit is held in what’s known as an escrow account by a third party until the sale closes. While this account is open, the borrower is considered to be in escrow. If the deal goes through, this deposit is applied towards your down payment and closing costs.