Earnest money is also known as what?

• A. Liquidated damages
• B. Down payment
• C. Closing costs
• D. Mortgage commitment

Answer: (A)

Earnest money is a deposit the buyer provides with the contract to show serious intent, held in escrow and typically credited toward the purchase at closing. In many contracts, it also serves as liquidated damages: if the buyer breaches the agreement, the seller may keep this money as compensation for the breach. That’s why it’s described as a form of liquidated damages in this context. It isn’t the down payment itself, which is a larger amount paid at closing toward the price, nor are the funds the closing costs or the lender’s mortgage commitment. Earnest money starts as a show of good faith and can become a damages remedy if the deal falls through due to the buyer’s default.