Money that must be deposited to show good faith in a purchase is called

Money that must be deposited to show good faith in a purchase is called

• A. Collateral
• B. Down Payment
• C. Earnest Money
• D. Escrow

Answer: (C)

Earnest money is the amount a buyer deposits to show serious intent to purchase a property. It signals to the seller that the buyer is committed and helps keep the deal moving forward. This money is usually held in an escrow account by a neutral third party and is later credited toward the purchase price at closing. Why this fits best: It specifically describes a deposit made to demonstrate good faith in a purchase, which is exactly what earnest money is designed to do. It’s not the down payment, which is part of the final price paid at closing and reduces the loan amount. It’s not collateral, which is something pledged to secure a loan. It’s not the general escrow arrangement itself, though escrow is the mechanism that holds the earnest money.

Earnest money is the amount a buyer deposits to show serious intent to purchase a property. It signals to the seller that the buyer is committed and helps keep the deal moving forward. This money is usually held in an escrow account by a neutral third party and is later credited toward the purchase price at closing.

Why this fits best: It specifically describes a deposit made to demonstrate good faith in a purchase, which is exactly what earnest money is designed to do. It’s not the down payment, which is part of the final price paid at closing and reduces the loan amount. It’s not collateral, which is something pledged to secure a loan. It’s not the general escrow arrangement itself, though escrow is the mechanism that holds the earnest money.