Buying your first Texas home can feel like alphabet soup. You hear “earnest money,” “option fee,” and “down payment,” and it all sounds like money out the door. If you are planning a move to Georgetown or elsewhere in Williamson County, you deserve a clear, simple explanation. In this guide, you will learn what each payment is, when it is due, how much is typical, and how to protect your money. Let’s dive in.
Key differences in one glance
- Earnest money: a good-faith deposit you deliver after your offer is accepted. Held in escrow and usually credited at closing.
- Option fee: a Texas-specific payment to secure an option period for inspections. Typically non-refundable.
- Down payment: your contribution to the purchase price at closing. Based on your loan program and lender rules.
What earnest money means in Texas
Earnest money is a deposit you make to show the seller you are serious about the purchase. In Texas, the residential contract is standardized, and the earnest money terms are part of the TREC-promulgated contract forms. Your deposit is typically held by a title company or an escrow agent until closing or until the contract says it should be released.
In Georgetown and across Williamson County, the size of the deposit depends on market conditions. In slower periods, you may see flat amounts like $500 to $2,000. In moderate competition, $1,000 to $5,000 is common. In more competitive or higher-price situations, buyers often use a percentage, such as 0.5% to 2% of the purchase price, to strengthen the offer. The National Association of Realtors describes earnest money as a standard good-faith practice across the country.
If you follow the contract timelines and close, your earnest money is usually credited to your down payment and closing costs. If you cancel under a permitted contingency and meet all notice deadlines, it may be refundable.
What a down payment is and how it works
Your down payment is the portion of the purchase price you bring to closing with your own funds. It affects your loan-to-value ratio, interest rate, and whether you need mortgage insurance. National programs set common minimums:
- Conventional loans: as low as 3% down for qualifying buyers through programs described by Fannie Mae and similar options with Freddie Mac.
- FHA loans: minimum 3.5% down for eligible borrowers, as outlined by HUD.
- VA loans: 0% down for eligible veterans and active-duty service members through the VA Home Loan program.
- USDA loans: 0% down for eligible rural buyers, administered by USDA Rural Development.
Your earnest money is not a substitute for the down payment. It can be applied toward your required funds at closing, but your lender will still verify that you meet the down payment and closing cost requirements.
The Texas option fee explained
Texas has a unique feature many buyers use: the option fee. In the TREC Residential Contract, the option fee buys you an option period, which is an unrestricted right to terminate the contract within that window. This allows you to have inspections and re-evaluate without needing a specific reason.
Option fees in Texas often range from $100 to $300, though they can be higher in competitive situations. The option fee is paid directly to the seller, is separate from earnest money, and is usually non-refundable if you choose to terminate. This is different from earnest money, which may be refundable if you cancel under a contract contingency and meet your notice deadlines.
When you pay and who holds the funds
Your contract will set the deadline to deliver earnest money. In Texas, it is common to deliver it within 1 to 3 business days after the contract effective date. You can send it by wire transfer, cashier’s check, or as directed in your signed agreement.
In most Georgetown-area transactions, a title company holds the earnest money in escrow. They keep it until closing or until the contract instructs them to release it. If you are wiring funds, protect yourself by confirming instructions directly with the title company using a verified phone number and following guidance from the Texas Land Title Association on wire fraud prevention.
Refund rules and common contingencies
Your earnest money is most often protected by clear contingencies and deadlines in the contract. These include the option period, financing, appraisal, and title review. If you terminate properly within those timelines and follow the notice steps, you can typically recover your earnest money as the contract allows.
- Option period: If you cancel within the option period, your option fee is usually non-refundable. Earnest money is commonly refundable when termination is timely and by the contract.
- Financing: If you cannot get final loan approval within the financing deadline and provide the required notice, earnest money is commonly refundable.
- Appraisal: If your contract includes an appraisal contingency and the appraisal comes in low, you may have a right to terminate and recover earnest money if notice is provided within the deadline.
- Title: If serious title issues arise and the contract gives you the right to cancel, earnest money is typically refundable when you follow the procedures.
If a buyer breaches the contract without a valid termination right, the seller may be entitled to the earnest money as liquidated damages, subject to the contract terms. Title companies will hold disputed earnest money until both parties agree or a court directs the release. For detailed contract language, review the TREC forms and instructions.
Budget planning for Georgetown buyers
Plan your cash needs in four separate buckets:
- Earnest money: due shortly after your offer is accepted.
- Option fee: due when the option period begins in Texas.
- Down payment: due at or before closing per your lender’s instructions.
- Closing costs: lender fees, title charges, and prepaids. The Consumer Financial Protection Bureau explains these costs and how they appear on your Loan Estimate and Closing Disclosure.
If you are shopping in Williamson County, home prices can vary by neighborhood. Even a 3% down payment can be a significant amount. Getting pre-approved early shows sellers you are serious and helps you choose the right mix of earnest money and timelines to compete without taking on unnecessary risk.
How to protect your earnest money
Use a simple checklist to stay safe:
- Confirm that your contract includes clear deadlines for the option period, financing, and appraisal.
- Pay the option fee if you want the unrestricted right to terminate during the option period.
- Deliver earnest money to the title company on time and keep your receipt.
- Send termination notices in writing before deadlines. Keep proof of delivery.
- Verify all wiring instructions with the title company by phone using a trusted number, following TLTA best practices.
Smart strategies in a competitive market
If multiple offers are common in your part of Georgetown, you can balance strength and safety.
- Increase earnest money to signal commitment, but keep essential contingencies intact.
- Consider raising the option fee or shortening the option period if you are confident about the home’s condition and your financing timeline.
- Coordinate with your lender so appraisal, underwriting, and closing dates are realistic. A solid pre-approval reduces the risk of missing deadlines.
Guidance for out-of-state buyers
Many buyers relocating to Williamson County handle most steps remotely. Texas supports Remote Online Notarization, which your title company can coordinate, and you can sign many documents electronically. If you cannot attend closing, you may be able to use a power of attorney if your lender and title company approve it.
Wires are common for earnest money and closing funds. Always confirm wiring instructions by calling the title company directly at a verified phone number. Never rely on emailed instructions alone.
Where to check for assistance programs
If you are a first-time buyer, look into the Texas Department of Housing and Community Affairs for statewide down payment assistance programs and education resources. Williamson County and the City of Georgetown may offer local programs from time to time. Verify current details on official city or county pages, and ask your lender how assistance can be combined with your loan.
Putting it all together
- Earnest money shows your good faith and is usually refundable if you terminate under contract rules.
- The option fee is a Texas-specific payment for an unrestricted option period and is usually not refundable.
- Your down payment happens at closing and is set by your loan program and lender requirements.
When you understand each payment and your deadlines, you protect your money and gain confidence in your Georgetown purchase. If you want personalized guidance on earnest money, option periods, and down payments for your price point and neighborhood, reach out to Raye Krustchinsky for local, step-by-step support.
FAQs
What is earnest money in a Texas home purchase?
- It is a good-faith deposit you submit after your offer is accepted, held in escrow by a title company per the TREC contract forms and generally credited to you at closing.
How much earnest money is typical in Georgetown, TX?
- Amounts vary with market conditions, often $1,000 to $5,000 in moderate competition or 0.5% to 2% of the price in stronger markets, with lower flat amounts possible in slower periods.
Is the Texas option fee the same as earnest money?
- No, the option fee is a separate payment to secure an option period for inspections and is usually non-refundable, while earnest money may be refundable if you terminate under contract rules.
Can earnest money count toward my down payment at closing?
- Yes, if you close, earnest money is typically credited toward your down payment and closing costs, but it does not replace the lender’s required minimum down payment.
What are common down payment minimums for Texas loans?
- Conventional programs can go as low as 3% for qualifying buyers, FHA is 3.5%, and eligible VA and USDA borrowers can have 0% down per Fannie Mae, HUD, VA, and USDA.
When is earnest money refundable in Texas?
- It is commonly refundable if you terminate within the option period or under financing, appraisal, or title contingencies and deliver written notice before the contract deadlines.
Who holds earnest money in Williamson County transactions?
- A title company typically holds the funds in escrow until closing or release instructions apply, and they will retain funds during disputes until there is agreement or a court order.
How can out-of-state buyers handle deposits safely?
- Use verified phone calls to confirm wire instructions with the title company, follow TLTA fraud prevention tips, and ask about Remote Online Notarization options for closing.
