What is earnest money and how does it factor into the process of buying a home?

Earnest money is a deposit made by a buyer to show their serious intention to purchase a home. It is typically a small percentage of the home's purchase price and is held in escrow until the sale is finalized. If the sale goes through, the earnest money is applied towards the down payment or closing costs. If the sale falls through due to the buyer's fault, the earnest money may be forfeited.