Buying in Northwood Hills and hearing terms like earnest money and down payment tossed around? You are not alone. These pieces serve different roles in a Texas purchase, and getting them right can help you write a strong, low‑stress offer. In this guide, you will learn how each item works, how Texas contracts treat the option period, what is typical in Northeast Dallas, and how to budget with real numbers. Let’s dive in.
Quick definitions you can trust
Earnest money (EM). This is a good‑faith deposit you deliver after your offer is accepted. It is held by a third‑party escrow agent and shows the seller you are serious. If you close, it is credited toward your cash to close.
Option fee. Texas uses a separate, usually smaller, nonrefundable fee that you pay to the seller for the right to terminate during the option period. It is different from earnest money and is not held in escrow.
Down payment. This is your cash contribution at closing. It reduces your loan amount and is determined by your loan program or your target equity. Your earnest money is normally applied toward this amount at closing.
To see the standard forms used in Texas, review the contract forms provided by the Texas Real Estate Commission. For consumer explanations on key terms and steps, you can also read buyer resources from Texas REALTORS.
How Texas contracts handle timing
The commonly used One to Four Family Residential Contract includes fill‑in blanks for when you must deliver earnest money and for the option period length and fee. There is no single statewide number. You and the seller negotiate these fields.
Typical Dallas practice is to deliver earnest money within 1 to 3 business days after the effective date, but the contract blank controls the deadline. The escrow agent named in the contract holds the funds and follows the instructions in the contract.
The option period gives you an unrestricted right to terminate if you act within the agreed days. If you terminate in time, the option fee stays with the seller, and you typically get your earnest money back per the contract. If a dispute happens, escrow agents usually require written instructions or a court order before releasing funds, which can take time to process.
For formal guidance on forms, deadlines, and escrow procedures, consult TREC’s consumer resources at the Texas Real Estate Commission and buyer education from Texas REALTORS.
What is typical in Northwood Hills
Northwood Hills includes both entry and move‑up homes. In a balanced setting, you often see earnest money at or near 1 percent of the price, or a flat $1,000 to $5,000. In multiple‑offer situations, some buyers raise EM to 2 to 3 percent, or use a larger fixed dollar amount.
Option fees in the Dallas area often range from about $100 to $400 for a short option window of 2 to 5 days. Sellers may ask for more or a shorter period when competition is high. Lengths of 5 to 10 days are more common when the market is less competitive.
Down payment choices depend on your loan. HUD’s FHA program allows a minimum 3.5 percent down if you qualify, as explained by HUD. Some conventional programs allow as little as 3 percent for eligible buyers, though many choose 5 to 10 percent. Putting 20 percent down removes private mortgage insurance on many conventional loans. Eligible veterans can use VA home loan benefits that may allow 0 percent down. For a plain‑English overview of down payment tradeoffs, see the CFPB guide on down payments.
How EM, option fee, and down payment work together
Think of earnest money as a prepayment that sits in escrow until closing. If you close, it reduces what you need to bring to the table. The option fee is separate and stays with the seller as payment for the termination right.
Example: You offer $400,000 and put up $4,000 in earnest money. Your loan requires 3.5 percent down, or $14,000. At closing, the $4,000 is credited, so you bring the remaining $10,000 plus any closing costs and lender‑required funds.
Budget examples for Northwood Hills buyers
Use these illustrations to plan your cash at different price points. Actual numbers depend on your contract and lender.
Example A: Entry segment at $300,000
- Earnest money: 1 percent = $3,000, or a minimal $1,000 in some cases
- Option fee: about $200 for a short option period
- Down payment examples:
- FHA 3.5 percent = $10,500
- Conventional 3 percent = $9,000
- 20 percent = $60,000
Example B: Move‑up segment at $500,000
- Earnest money: 1 percent = $5,000, or 2 percent = $10,000 for stronger offers
- Option fee: $200 to $500 depending on terms
- Down payment examples:
- Conventional 5 percent = $25,000
- 20 percent = $100,000
Example C: Higher‑priced scenario at $800,000
- Earnest money: 1 percent = $8,000, or 2 percent = $16,000 to signal strength
- Down payment examples:
- 20 percent = $160,000, with other financing options available
Structuring a strong offer in Northwood Hills
If the listing is new and interest is high, consider raising earnest money to 1 to 2 percent and shortening the option period if you are comfortable with the property’s condition. A higher option fee can also signal commitment. Always align these choices with your risk tolerance and inspection plan.
In a balanced situation, 1 percent or a flat $1,000 to $5,000 in earnest money plus a modest option fee of $100 to $300 and a 5 to 10 day option period gives you time to inspect. Ask your agent to confirm any seller expectations posted in the MLS before you write.
Coordinate with your lender so your earnest money source is documented and acceptable. Lenders often want to see where funds came from and may need a paper trail.
Step‑by‑step checklist
Before you submit an offer
- Confirm your loan program and minimum down payment.
- Choose your option period length and option fee.
- Select an earnest money amount suited to price and competition. A 1 percent target is common.
- Verify your funds are liquid and acceptable to your lender and the escrow agent.
When the contract is executed
- Deliver earnest money to the named escrow agent within the contract deadline and get a receipt.
- Pay the option fee to the seller as the contract requires and get written acknowledgment.
- Schedule your inspection immediately to fit your option window.
If you terminate during the option period
- Send written termination before the option period ends and confirm receipt.
- Follow escrow instructions to request your earnest money return. Processing can take time.
If a dispute arises
- Follow the dispute resolution steps in the contract. The escrow agent can only release funds by mutual written instructions, contract terms, or a court order.
For authoritative references on forms and buyer rights, visit the Texas Real Estate Commission and Texas REALTORS. For loan program basics, review HUD’s FHA overview, VA home loan resources, and the CFPB’s down payment guide.
Your next step
Clarity on earnest money, option fees, and down payments helps you move fast when the right Northwood Hills home hits the market. If you want local guidance on how to structure a winning offer in Northeast Dallas, our boutique team is ready to help. Work with the hands‑on advisors at Kin Worth to navigate your next move with confidence.
FAQs
Is earnest money refundable in Texas contracts?
- It depends on the contract. If you terminate under a valid provision like a timely option termination or a contract‑based lender denial, you usually get EM back. The option fee stays with the seller.
How fast do I have to deliver earnest money in Northwood Hills?
- The deadline is the number of days written in your contract. Dallas practice often uses 1 to 3 business days after the effective date, but the contract blank controls.
Can earnest money be more than my down payment?
- It can be, since EM is negotiated, but it is uncommon and unnecessary. Any excess would still be your funds and would be applied or adjusted at closing.
What happens if the appraisal comes in low on my Northwood Hills home?
- Your lender bases the loan on appraised value. You might renegotiate, pay the gap, contest the appraisal, or terminate if your contract allows. EM return depends on your specific clause.
Can I use earnest money toward my down payment at closing?
- Yes. Earnest money is normally credited toward your cash to close, which includes your down payment and closing costs.
