Buying a home in Federal Way can feel like learning a new language. Two terms that cause the most confusion are earnest money and down payment. They both involve your cash, but they work at different times and for different reasons. If you get them right, you protect yourself and keep your purchase on track. In this guide, you will learn what each one is, when you pay them, how much is common in King County, and how to protect your money with the right contingencies. Let’s dive in.
Quick definitions
Earnest money
- What it is: A good-faith deposit you pay after your offer is accepted. It shows the seller you intend to follow through.
- Where it goes: Usually held by an escrow or title company, or a broker trust account, according to the purchase and sale agreement and Washington rules. The Washington State Department of Licensing explains how licensees must handle client funds and trust accounts. You can review the department’s guidance on real estate and trust funds through the Washington DOL’s site for real estate licensing and trust accounts.
- Why it matters: It protects the seller while the home is off the market. If you breach the contract, the seller may be able to keep some or all of it, depending on the contract.
Down payment
- What it is: The part of the price you pay at closing that is not financed. Your lender requires it.
- Where it goes: Applied to the purchase price at closing. Escrow disburses funds to the seller as part of the transaction.
- Why it matters: Your down payment size affects your loan approval, mortgage insurance, interest rate, and monthly payment. For general closing steps and timing, see the Consumer Financial Protection Bureau’s overview on closing.
Why both matter
- Earnest money helps secure the property while you complete inspections, appraisal, and loan approval.
- The down payment is what helps your loan fund and your purchase close.
How it works in Federal Way
When you pay earnest money
- You typically deposit earnest money shortly after the seller accepts your offer. The exact deadline and who will hold the funds are spelled out in the signed purchase and sale agreement.
- In King County, escrow or title companies commonly hold these funds in a trust account until closing or until the contract ends.
When you pay your down payment
- You provide down payment funds at closing, or immediately before, to the escrow or title company. Those funds are applied to the purchase price at signing.
- Sources can include savings, gift funds allowed by your loan program, or proceeds from a home sale. Your lender will verify the source.
Federal Way timeline at a glance
- Offer accepted
- Earnest money deposited per the agreement
- Inspection and other contingencies run their course
- Appraisal and loan underwriting
- Closing, where earnest money is credited toward your down payment and closing costs, and you bring the rest of the down payment
For a general overview of closing steps and timing, the CFPB’s closing guide provides helpful context.
How much do you need?
Earnest money ranges in King County
- Amounts vary with market conditions and are negotiable. In South King County, you will see a wide range.
- Common patterns in the Puget Sound region include:
- Low competition: about $1,000 to $5,000
- Stronger markets: often 1% to 3% of the price, or set amounts like $5,000 to $15,000 for many single-family homes
- Multiple-offer situations: buyers sometimes offer higher deposits to stand out
- Your agent can share current Federal Way examples since local norms shift quickly.
Down payment by loan type
- FHA loans can require as little as 3.5% down for eligible borrowers. You can learn more through HUD’s FHA program information.
- Some conventional programs allow 3% down for eligible buyers, while 5% or more is common in other cases. Private mortgage insurance usually applies below 20% down.
- VA loans allow 0% down for eligible veterans and service members. See the U.S. Department of Veterans Affairs home loan page for details.
- Jumbo loans often require higher down payments that can start around 10% to 20% or more, depending on the lender.
Simple examples
- Example A, $500,000 purchase: You offer 1.5% earnest money, which is $7,500. You plan a 5% down payment, which is $25,000. At closing, the $7,500 earnest money is credited toward the $25,000 you owe.
- Example B, $700,000 purchase in a competitive situation: You offer $15,000 earnest money. You use an FHA loan with 3.5% down, which is $24,500. At closing, the $15,000 is credited toward the $24,500.
What protects your earnest money?
Common Washington contingencies
- Inspection: If you cancel within the inspection timeline allowed by the contract, your earnest money is typically refundable.
- Financing: If your loan is denied and you cancel within the financing contingency period, your earnest money is typically refundable.
- Appraisal: If the property appraises below the price and you cancel according to the appraisal clause, your earnest money is typically refundable.
- Title: If a title defect cannot be resolved within the contract terms, you can usually cancel and recover your deposit.
- Sale of buyer’s home: If included, this contingency can protect your deposit if you cannot sell in time.
Washington brokers commonly use standard forms that outline these timelines and remedies. For general insight into offers and earnest money concepts, you can review guidance from the National Association of Realtors. In King County, many brokers also rely on Northwest Multiple Listing Service forms that include earnest money clauses and timelines.
If a deal falls through
- If you breach the contract without a permitted reason, the seller may be allowed to keep the earnest money as liquidated damages, depending on the specific contract language and Washington law.
- If there is a disagreement about who gets the deposit, escrow will often hold funds until it receives signed, mutual instructions or a court order. This can involve mediation, arbitration, or an interpleader action. Escrow companies will not release disputed funds without proper instructions.
Seller tips in Federal Way
- Verify the deposit: Ask for a copy of the deposit receipt from escrow before relying on the funds.
- Name the escrow holder in the contract: Identify a reputable local title or escrow company in the agreement to prevent confusion.
- Review remedies: Understand whether your contract limits you to liquidated damages or allows other remedies if the buyer defaults.
- Evaluate the whole offer: A larger earnest money deposit can signal a serious buyer, but price, timelines, and contingencies also matter.
Buyer tips and checklist
- Know your comfort level: Decide how much earnest money you can put at risk if you plan to waive or shorten contingencies.
- Map your deadlines: Track deposit due date, inspection period, appraisal, financing, and contingency removal dates from your signed agreement.
- Coordinate with your lender: Tell your lender when and how much earnest money you deposit. Lenders verify where funds came from.
- Get a receipt: Deposit with the named escrow or title company and keep proof of payment.
- Protect yourself: Do not waive contingencies without understanding how that affects your earnest money.
Local details to know
- In Washington, most closings are handled by independent escrow and title companies. The Washington Department of Licensing regulates real estate brokers and trust accounts for client funds.
- King County collects real estate excise tax and handles recording. While this is separate from earnest money and down payment, it affects your overall closing costs and timeline. You can explore closing cost context through King County’s official site.
Putting it all together
Earnest money and down payment serve different roles in your Federal Way purchase. The earnest money shows commitment and sits in escrow while you complete inspections and financing. The down payment arrives at closing and helps your loan fund. Use clear timelines, the right contingencies, and lender coordination to keep your money protected and your closing on track.
If you want a clear plan for your purchase or need a faster solution, reach out to AMP Properties Group NW. Our team will help you structure a strong offer, track every deadline, and, if needed, discuss a fast cash-close option with reliable timelines.
FAQs
What is the difference between earnest money and a down payment in Federal Way?
- Earnest money is a good-faith deposit held in escrow after offer acceptance, while the down payment is the larger amount you bring at closing that reduces your loan.
Is earnest money refundable in Washington State?
- It is often refundable if you cancel within a valid contingency period in your contract, such as inspection, financing, appraisal, or title.
How much earnest money is common in King County, WA?
- Amounts vary, but many offers range from $1,000 to $5,000 in low competition and about 1% to 3% of price in stronger markets, with higher deposits in multiple-offer situations.
Does earnest money apply to my down payment at closing?
- Yes. At closing, your earnest money is usually credited toward your down payment and closing costs.
What happens to earnest money if the appraisal is low?
- If your contract includes an appraisal contingency and you cancel according to its terms, your earnest money is typically refundable.
Who holds the earnest money in a Federal Way home purchase?
- The purchase and sale agreement names the holder, commonly an escrow or title company or a broker trust account under Washington rules.
When is the down payment due in a Federal Way transaction?
- Your down payment is due at closing, or immediately before, when you sign final documents and escrow disburses funds.
Sources for further reading: review the Washington DOL’s real estate guidance, the CFPB’s closing overview, HUD’s FHA program information, the VA home loan page, NAR resources, NWMLS information, and King County’s site for closing cost context.
