Earnest Money vs Down Payment For Medical Center Buyers

Buying near the Texas Medical Center and trying to map your cash from offer to close? You are not alone. Many physicians and researchers ask how earnest money, the Texas option fee, and the down payment fit together. In a market with condos and townhomes, the details matter. This guide breaks down what each payment is, when it is due, what gets refunded, and how to plan your cash flow without stress. Let’s dive in.

Earnest money vs down payment in Texas

What is earnest money

Earnest money is a good-faith deposit you include with your accepted offer. It shows the seller you are serious. A title company or escrow agent holds the funds until closing. If you close, the money is credited to what you owe. Earnest money in Texas is handled under the terms of the TREC contract and escrow instructions. You can review the TREC-promulgated contract forms for context.

What is the option fee

Texas uses an option fee, a small fee you pay directly to the seller for an agreed option period. During that period, you have the unrestricted right to terminate for any reason. This is your inspection window. The fee is usually nonrefundable, but it can be credited at closing if the contract says so. The option period and fee are negotiated in the offer and governed by the One to Four Family Residential Contract.

What is the down payment

Your down payment is the portion of the price you bring in cash at closing. Your mortgage covers the rest. The source can be your savings, a gift, down payment assistance, or other acceptable funds per your lender and program. Conventional loans often require private mortgage insurance if you put down less than 20 percent. FHA, VA, and other programs have their own rules. If you are a qualified veteran or active duty, the VA home loan program can allow zero down.

Typical amounts and timing near the Medical Center

Earnest money: how much and when

In the Houston area, earnest money for entry-level to mid-priced homes often ranges from $1,000 to about 1 percent of the purchase price. In competitive cases, 1 to 3 percent is common to strengthen an offer. Condos and townhomes near TMC follow similar norms. The contract usually requires you to deliver earnest money to the title company within 1 to 3 business days of the effective date.

Option period and fee

Option periods in Texas are typically 5 to 10 days, though you can negotiate a longer or shorter period. Option fees often run $100 to $500. In multiple-offer situations, sellers may prefer a shorter option period and a higher fee. If you terminate within the option period under the contract, your earnest money is typically returned, while the option fee is usually kept by the seller.

Down payment norms by loan type

• Conventional programs can start around 3 percent down for qualified buyers, with many buyers choosing 5 to 20 percent. Twenty percent avoids PMI.
• FHA loans commonly start at 3.5 percent down for qualified borrowers.
• VA loans can be zero down for eligible buyers.
• USDA loans offer zero down in certain rural areas, which is less likely inside the Medical Center area.

Your lender will confirm the minimum and acceptable sources of funds. If you want an early estimate of closing costs and cash to close, ask for a Loan Estimate. The CFPB guide to the Loan Estimate explains what to look for.

What protects your earnest money

Contingencies and refunds

Texas buyers commonly rely on these protections:

• Option period: If you terminate during the option period, your earnest money is typically refunded.
• Financing contingency: If you cannot obtain financing on time and terminate under the contract rules, earnest money is usually refunded.
• Appraisal: If the property appraises below contract price, you can renegotiate or terminate under the contract terms. If you terminate properly and on time, your earnest money is typically refunded.
• Title and survey: Unresolved title defects or survey problems that the seller will not fix can allow you to terminate and recover earnest money.

Always follow the exact notice and timing requirements in the TREC contract. Late notices can void your protections.

When you could lose earnest money

Your earnest money may be forfeited to the seller if you back out outside of your contract rights. Common risks include missing the option period deadline, failing to deliver required notices, or not performing under the contract without an allowed reason. Some TREC contracts allow the seller to keep the earnest money as liquidated damages if you default.

Disputes and documentation

The title company holds earnest money and releases it based on signed instructions from both parties or as directed by the contract. If there is a dispute, the escrow agent may hold the funds until the parties agree or a court decides. Keep proof of all payments, notices, and lender communications. Copy your title company on key notices so there is a clear record.

Cash-flow plan for busy TMC buyers

Upfront funds to plan for

• Earnest money: often $1,000 to 1 to 3 percent of price.
• Option fee: commonly $100 to $500.
• Inspections: usually $300 to $800 or more, depending on property type and add-ons.
• Appraisal: some lenders collect an upfront appraisal fee, while others include it at closing.
• Closing costs: plan roughly 2 to 5 percent of price for lender, title, and prepaids. Your Loan Estimate will refine this range.
• HOA and condo-related items: document fees, application fees, and possible assessments. For condos and townhomes near TMC, request HOA documents early to keep the timeline on track.

One-week to close timeline

• Day 0 to 1: Contract effective. Deliver earnest money to the title company within the contract’s deadline. Send the option fee to the seller per the contract.
• Days 1 to 3: Book inspections. Start with general inspection, then order specialty inspections if needed. Share repair requests within the option period.
• Days 1 to 5: Provide all documents to your lender. The lender orders the appraisal.
• Week 2 to 3: Appraisal completed. Title work continues. If buying a condo or townhome, review HOA documents as soon as available.
• Week 3 to 5: Final underwriting, clear any conditions, and get your closing disclosure. Do final walk-through and close.

Closing timelines vary. Financed purchases commonly target 30 to 45 days in the Houston area. Cash buyers can close faster.

Example numbers for planning

Here is an illustrative scenario for a $450,000 purchase near the Medical Center:

• Earnest money: $4,500 at 1 percent, due within a few days of the effective date.
• Option fee: $300, paid to the seller when the option period is negotiated.
• Inspections: about $600 for standard inspections.
• Estimated closing costs: about 2.5 percent, or $11,250, paid at closing.
• Down payment: if you choose 10 percent, that is $45,000. Your earnest money is credited at closing, so the remaining down payment due would be about $40,500 plus closing costs.

Near-term cash in week one after acceptance: earnest money $4,500 + option fee $300 + inspections $600, or about $5,400. Your remaining funds for down payment and closing costs are due at closing.

Smart negotiation moves in a competitive market

• Pair a strong preapproval with a realistic earnest money deposit. Show commitment without overextending cash you need later to close.
• Set an option period that fits your schedule. Only shorten it if you can complete inspections quickly and still make decisions with confidence.
• For condos and townhomes, get HOA documents early. Review rules, insurance requirements, and any assessments before your option period ends.
• Ask your lender early about gift funds or assistance programs. Some programs need specific documentation and timing to approve those funds.
• Keep a small reserve beyond down payment and closing costs. Your lender may require reserves for certain loan types.
• Discuss with your agent whether a higher earnest money deposit or a modest price improvement will help your offer stand out.

Next steps

Buying near TMC moves fast, but your plan can be simple. Set aside funds for earnest money, the option fee, and inspections, protect your timeline, and keep your lender, title company, and agent in the loop. With clear steps and strong guidance, you can focus on your work while your purchase moves forward.

If you want a clear, concierge plan from offer to close in the Medical Center area, connect with Tahira Syed to schedule a personalized market consultation.

FAQs

What is earnest money in Texas and how is it used

• It is a good-faith deposit held by a title company under the TREC contract and credited to you at closing if the sale completes.

How is the Texas option fee different from earnest money

• The option fee is a smaller, usually nonrefundable payment to the seller for an option period that gives you the unrestricted right to terminate.

When do I get my earnest money back if I terminate

• If you terminate within the option period or under contract contingencies like financing, appraisal, or title issues, your earnest money is typically refunded.

How much should I plan for the down payment near TMC

• Many buyers put 3 to 20 percent down depending on the loan program and goals. VA-eligible buyers can put zero down; your lender will confirm specifics.

What cash should I have ready in the first week after offer acceptance

• Plan for earnest money, the option fee, and inspection costs. For many buyers, that totals several thousand dollars shortly after the contract is effective.