Earnest money in Texas is the good-faith deposit you make after your offer is accepted. Under the current TREC One to Four Family Residential Contract (Resale), form 20-19, you deliver it to the escrow agent named in the contract, typically a title company, within 3 days after the Effective Date. At closing, it's applied to your down payment and costs. If the contract ends under one of its termination rights, such as the option period or the financing addendum, it's refunded to you, usually after both sides sign a release.
I'm Taylor Ring, a Mortgage Loan Officer with Fairway Independent Mortgage Corporation (The Wood Group) in Belton. Earnest money is often the first big check a buyer writes, so here's how it works in the contract most Texas resale buyers sign. Everything below comes from TREC's current forms and FAQs, read October 18, 2026, plus the CFPB for the basics. It pairs with my guide to the Texas option fee and option period.
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What Earnest Money Is
The CFPB defines earnest money as a deposit that shows good faith on a signed contract. If the sale closes, it may be applied to your down payment or closing costs. If the contract ends for a permissible reason, it's returned. If the buyer doesn't perform, it may be forfeited to the seller.
The TREC contract puts those ideas into specific deadlines and rules. It isn't the same as the option fee, which buys the right to terminate during the option period and isn't refunded if you use it.
Who Holds Earnest Money in Texas
Paragraph 5A of the TREC resale contract has a blank for the Escrow Agent and its address. The earnest money is made payable to the Escrow Agent, not to the seller. TREC's own guidance on option fees describes delivery to the title company, and the contract also names a Title Company for the title policy.
Paragraph 18A sets the Escrow Agent's role:
- It isn't a party to the contract and isn't liable for either side's performance.
- It isn't liable for interest on the earnest money.
- It isn't liable for losses from the failure of the bank where the money is deposited, unless that bank is the Escrow Agent.
- It can wait for good funds before disbursing.
TREC notes that title companies are regulated by the Texas Department of Insurance, and that TREC has no jurisdiction over title companies. If a broker holds the money in a trust account instead, TREC's rules govern how the broker handles it.
The Delivery Deadline
- Within 3 days after the Effective Date. Earnest money and the option fee are both due then, paid separately or combined.
- Weekend and holiday rule. If the last day falls on a Saturday, Sunday, or legal holiday, the deadline moves to the end of the next day that isn't one (Paragraph 5A(2)).
- How days count. TREC's FAQ says day one is the day after the Effective Date, and every day is a calendar day.
- Additional earnest money. Paragraph 5A(1) lets the parties add a second deposit due a set number of days after the Effective Date.
- Combined payments. Money received is applied first to the option fee, then to earnest money, then to additional earnest money.
Miss it, and the seller has options. Under Paragraph 5C, if you don't deliver on time, the seller may terminate or pursue remedies under Paragraph 15, or both, by giving notice before you deliver. Paragraph 5E says time is of the essence. The last page of the contract has an Earnest Money Receipt the escrow agent signs.
When You Can Get Your Earnest Money Back
The contract lists specific situations where "the earnest money will be refunded to Buyer." These are the common ones:
| Situation | Where It's Found | Key Condition |
|---|---|---|
| Termination option | Contract 5B | Notice by 5:00 p.m. on the last day of the option period |
| Can't get loan approval | Third Party Financing Addendum 2A | Within the addendum's days, with the lender's written statement |
| Property doesn't meet lender requirements | Third Party Financing Addendum 2B | On or before the 3rd day before closing, with the lender's statement |
| FHA or VA appraisal below the stated amount | Third Party Financing Addendum 4 | No penalty by forfeiture of earnest money |
| Appraisal below a set value (non-FHA/VA) | Appraisal Addendum 49-1, option 3 | Within the agreed days, with a copy of the appraisal |
| Seller's Disclosure Notice not received at signing | Contract 7B(2) | Within 7 days after receiving it, or any time before closing if never received |
| Title objections not cured | Contract 6D | Notice within 5 days after the cure period ends |
| Lender-required repairs | Contract 7E | Parties don't agree to pay, or costs exceed 5% of the price |
| Casualty damage not restored | Contract 14 | Seller can't restore the property by closing |
Sources: TREC form 20-19, Third Party Financing Addendum 40-11, and Addendum 49-1.
Other provisions can apply too, like the HOA addendum or the Seller's Water Disclosure in Paragraph 7I (TREC form 61-0, effective July 1, 2026). TREC's Notice of Buyer's Termination of Contract (form 38-8) lists the common grounds with checkboxes.
The financing addendum matters most to me. Buyer Approval protects you only through its deadline. After that, the contract is no longer subject to it. That's why I want your documents early, so you know where you stand before that date passes.
When the Seller Can Keep It
Under Paragraph 15, if the buyer fails to comply with the contract, the seller may either enforce specific performance and seek other relief, or terminate and receive the earnest money as liquidated damages. If the seller defaults, the buyer may enforce specific performance or terminate and receive the earnest money.
TREC's FAQ is blunt: there's no automatic three-day cooling-off period on a home purchase. Changing your mind after the option period, without another contract right, can put your deposit at risk.
What Happens to Earnest Money at Closing
Paragraph 18B says that at closing, the earnest money is applied first to any cash down payment, then to your expenses, with any excess refunded to you. It's credit for money you've already paid, so it reduces the cash you bring to closing. You'll see it on your Closing Disclosure. My guide to closing costs in Texas explains that form.
Your lender will look at the deposit too. Fannie Mae's Selling Guide, for example, accepts earnest money as a source of funds for the down payment and closing costs. It requires verification that it came from an acceptable source and that the holder received it.
Using down payment assistance? TSAHC's guidelines say its assistance is funded at closing, and it can't be paid to you except to reimburse an overage of earnest money deposits or items paid outside closing, once the minimum borrower contribution is met. Plan to fund the deposit yourself. See my Texas down payment assistance guide.
Getting It Released: Releases, Demands, and Disputes
If the contract ends without closing, the money doesn't move automatically.
- Release. Under Paragraph 18C, either party or the Escrow Agent may send a release of earnest money, and the parties sign and return it. The Escrow Agent may require a written release from all parties and may deduct authorized expenses it incurred for the party receiving the money (18B).
- Demand. If either party won't sign, the other can make a written demand. The Escrow Agent sends a copy to the other party. If it gets no written objection within 15 days, it may disburse to the party who made the demand.
- Liability. Under 18D, a party who wrongfully fails or refuses to sign an acceptable release within 7 days of a request can be liable for damages, the earnest money, reasonable attorney's fees, and court costs.
- Mediation. Paragraph 16 sends unresolved disputes to mediation, with costs shared equally.
TREC doesn't publish a separate "release of earnest money" form in its current contract forms. The contract simply refers to "a release of earnest money" that either party or the escrow agent may send. TREC's termination notice says it "is not an election of remedies" and that release of the earnest money is governed by the contract. TREC also says it can't decide who's entitled to disputed earnest money, so a real estate attorney is the next call.
This is general information, not legal advice.
Frequently Asked Questions
Who holds earnest money in Texas?
Under the TREC resale contract, the buyer delivers earnest money to the escrow agent named in the contract, typically a title company, not to the seller. The escrow agent holds it until closing or until the parties sign a release or the contract's demand process is completed.
How long do I have to deposit earnest money in Texas?
TREC contract 20-19 requires the buyer to deliver earnest money to the escrow agent within 3 days after the Effective Date. If the last day falls on a Saturday, Sunday, or legal holiday, the deadline extends to the end of the next day that is not one.
Is earnest money refundable in Texas?
It is refundable when you terminate under a right the contract gives you, such as the option period, the Third Party Financing Addendum, or an uncured title objection, and you meet that provision's deadline. If you default, the seller may keep it as liquidated damages.
What happens to my earnest money at closing?
The TREC contract says earnest money is applied first to any cash down payment, then to your closing expenses, and any excess is refunded to you. It reduces the cash you need to bring to closing and appears on your Closing Disclosure.
How do I get my earnest money back after terminating?
Either party or the escrow agent sends a release that both sides sign. If one side will not sign, the other can make a written demand, and the escrow agent may pay it out if no written objection arrives within 15 days. Unresolved disputes go to mediation.
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Related Guides
- Texas Option Fee and Option Period
- Closing Costs in Texas
- Down Payment Assistance in Texas
- Buying a Home in Texas and Killeen
Sources
- TREC: One to Four Family Residential Contract (Resale), TREC No. 20-19
- TREC: Third Party Financing Addendum (40-11), Addendum 49-1, and Notice of Buyer's Termination (38-8)
- TREC: Frequently Asked Questions and Changes to Delivery of Option Fee
- CFPB: Mortgage key terms (earnest money)
- Fannie Mae Selling Guide B3-4.3-09, Earnest Money Deposit
- TSAHC Program Guidelines (revised Sept. 9, 2026)
Taylor Ring, NMLS #2809683 | Fairway Independent Mortgage Corporation, NMLS #2289 | The Wood Group of Fairway, 127 Lake Rd Ste 300, Belton, TX 76513 | Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit approval and program guidelines, and approval, rates, and program availability are not guaranteed. This article is general information, not legal advice; your contract's terms control, so consult a real estate attorney with questions. Not affiliated with or endorsed by the Texas Real Estate Commission, the CFPB, or any government agency.