Earnest Money in Texas: How It Works Under the TREC Contract

Earnest money in Texas explained

When you make an offer on a home in Texas and the seller accepts, you both sign a contract. Most resale homes (houses, duplexes, triplexes, and fourplexes that are not new builder homes) use the One to Four Family Residential Contract (Resale), a form written by the Texas Real Estate Commission. TREC lists the current version as form 20-19, effective July 1, 2026. TREC says this form is not for condominiums, new homes sold by a builder, or farm and ranch properties, which have their own forms.

Paragraph 5 of the contract covers earnest money and the termination option. You fill in the dollar amount of earnest money, the escrow agent’s name and address, and the option fee. The money is made payable to the escrow agent, not to the seller or either real estate agent.

Think of earnest money as a promise backed by cash. It tells the seller you mean to close. If the deal goes through, it becomes part of what you pay at closing. If the deal falls apart, who gets it depends on why, as the contract spells out.

Option fee versus earnest money

Texas contracts have two separate deposits, and buyers often mix them up. Here is how they compare under form 20-19:

The contract says money the escrow agent receives is applied first to the option fee, then to earnest money, then to any additional earnest money. So if you send one combined check that is short, the option fee is covered first.

The option period is the number of days after the effective date that you write into paragraph 5B. During that time you can end the contract for any reason by giving notice by 5:00 p.m. local time on the last day. If no option fee is stated, or you fail to pay it on time, you do not get that unrestricted right to end the deal.

How much buyers usually put down

No Texas law or TREC rule sets a required amount of earnest money. The contract leaves a blank, and the buyer and seller negotiate it. The option fee and the length of the option period are negotiated too.

Agents often suggest an amount based on the local market and the price of the home. TREC does not publish a typical percentage, so be cautious about any website that states one as a rule. A larger deposit can make an offer look stronger, but it also means more money at risk if you default. If you are stretching to come up with earnest money, talk with a housing counselor before you sign.

The form also lets you agree to additional earnest money, due a set number of days after the effective date (paragraph 5A(1)). Some buyers use this to keep the first deposit small while still showing commitment.

Deadlines in the TREC resale contract

Time matters in this contract. Paragraph 5E says “time is of the essence” for the earnest money and option paragraph, and strict compliance with the deadlines is required. Key dates in form 20-19 and the financing addendum:

The “effective date” is the date written on the contract’s signature page as the date it was executed, which is generally when the last party signed and accepted it. Count from that date, and mark each deadline on a calendar the day you sign.

When you get your earnest money back

The resale contract and its addenda list many situations where the contract ends and “the earnest money will be refunded to Buyer.” Common ones include:

• You end the deal during the option period. You get the earnest money back but not the option fee (paragraph 5B).
• Your loan is not approved. If you checked the box making the contract subject to Buyer Approval in the Third Party Financing Addendum (TREC form 40-11), and the lender does not approve you, you can end the contract within the days written there. You must give the seller notice and a copy of the lender’s written statement of the reasons.
• The home does not meet the lender’s requirements. If the lender decides the property fails its underwriting, such as appraisal, insurability, or required repairs, you can end the contract on or before the 3rd day before closing with the lender’s written statement.
• FHA or VA loans. The addendum says you are not required to complete the purchase, or forfeit earnest money, unless you receive the required FHA or VA appraisal statement showing a value of at least the amount written in the addendum. You may still choose to go ahead at a lower appraisal.
• Title problems. If the title commitment is not delivered on time, or the seller does not cure your timely objections within the 15-day cure period, the contract lets you end it and get the earnest money back. For uncured objections, you must give notice within 5 days after the cure period ends.
• Damage before closing. If the home is damaged by fire or another casualty and the seller cannot restore it by closing, you may end the contract and get the earnest money back (paragraph 14).
• The seller defaults. If the seller fails to comply, you can end the contract and receive the earnest money, or seek other remedies (paragraph 15).

Read the boxes you check carefully. A box that is left blank, or a contract that is “not subject to Buyer Approval,” can remove a protection you were counting on.

Can you lose your earnest money in Texas?

Yes. Paragraph 15 says that if the buyer fails to comply with the contract, the seller may either enforce the contract or end it and receive the earnest money as liquidated damages. Common ways buyers lose it:

• Backing out after the option period for a reason the contract does not cover.
• Missing a financing deadline. If you do not end the contract within the Buyer Approval days, the addendum says the contract is no longer subject to Buyer Approval.
• Not closing on time without an agreed extension.
• Waiving the financing addendum and then failing to get a loan.

Paying earnest money late is also risky. Under paragraph 5C, if you do not deliver it on time, the seller may end the contract or use the default remedies by giving you notice before you deliver it.

The contract also encourages mediation for disputes (paragraph 16), and the side that wins a lawsuit over the contract can recover reasonable attorney’s fees (paragraph 17). If you think a seller is holding your deposit unfairly, talk to a real estate attorney or a legal aid office before you sign anything.

Release forms and disputes

When a contract ends, the escrow agent does not decide on its own who gets the money. Paragraph 18 sets the process:

1. Release: either party or the escrow agent may send a release of earnest money. When both sign, the escrow agent pays out as the release says.
2. Demand: if one side will not sign, the other may make a written demand to the escrow agent for the money.
3. 15-day objection window: the escrow agent sends a copy of the demand to the other side. If no written objection arrives within 15 days, the agent may pay the money to the side that made the demand, minus unpaid expenses.
4. Penalty for refusing: a party who wrongfully refuses to sign an acceptable release within 7 days of the request can owe the other side damages, the earnest money, attorney’s fees, and court costs.

The escrow agent may also deduct authorized expenses and may require good funds before paying out. The agent is not liable for interest on the deposit. Watch your email and mail closely after a deal falls through, because the 15-day window can pass quickly.

What happens to the deposit at closing

If the sale closes, you do not lose the earnest money. Paragraph 18B says it is applied first to any cash down payment, then to the buyer’s expenses, with any extra refunded to you. The option fee is credited to the sales price. Both should appear as credits on your closing disclosure. If you do not see them, ask the title company before you sign.

The Consumer Financial Protection Bureau’s Buying a House tools walk through the closing disclosure line by line and help you compare loan offers.

Help for low-income and first-time buyers

Earnest money is usually paid early from your own funds, before any down payment help is paid out at closing. That can be hard on a tight budget. These free or low-cost resources can help you plan:

• HUD-approved housing counselors. They can review your budget, explain the contract, and point you to local down payment programs. Use HUD’s find a housing counselor tool. Many state and lender programs require a homebuyer education class, which counselors often offer.
• Texas Department of Housing and Community Affairs (TDHCA). TDHCA runs statewide homebuyer loan and down payment assistance programs offered through participating lenders, with income and purchase price limits that vary by county. Its Help for Texans page lists housing and other help by area.
• Texas State Affordable Housing Corporation (TSAHC). TSAHC, a nonprofit created by the state, offers home loan programs with down payment help for eligible buyers, including programs for teachers, first responders, veterans, and other public servants. Ask a participating lender or a housing counselor which programs are open now.
• City and county programs. Many Texas cities and counties offer their own help. See our guides to Austin down payment assistance and the Texas down payment assistance program.

Ask any program, before you sign a contract, whether its assistance can cover or reimburse earnest money and how the option fee is treated. Rules differ by program and lender. Applying for official programs is free; be wary of anyone who charges a fee to “get you approved” for a grant.

Protecting your deposit from scams

Earnest money is a common target for wire fraud. Scammers send fake emails that look like they come from a title company or agent, with “updated” wiring instructions. A few habits protect you:

• Call to confirm. Before you wire money, call the title company at a phone number you found yourself, not one in the email.
• Treat changes as a red flag. Title companies rarely change wiring instructions by email.
• Get a receipt. The TREC contract has an earnest money receipt and option fee receipt for the escrow agent to sign. Keep copies.
• Pay the escrow agent only. The contract says the money is payable to the escrow agent, not to a person or a seller’s personal account.

Our home loan calculators can help you see how much house fits your budget before you start making offers.

Related guides

• Texas down payment assistance program
• Home loan calculators
• Section 8 homeownership program eligibility
• Texas financial assistance

Frequently asked questions

This guide is general information, not legal advice. Your contract controls; TREC forms are updated from time to time, so read the version you sign and talk to a Texas real estate attorney about a dispute. National Relief Program is an independent website and is not affiliated with TREC, TDHCA, TSAHC, HUD, or any government agency.