Housing Counselor Certification (HUD) Practice Exam

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Which type of deposit may be required by a lender when applying for a mortgage?

Good Faith Deposit
Security Deposit
Earnest Money Deposit
Cash Deposit

The correct answer is: Earnest Money Deposit

The earnest money deposit is a specific type of deposit that is commonly required by lenders when you apply for a mortgage. This deposit demonstrates the buyer's serious intent to purchase a property, serving as a financial commitment that can be applied towards the down payment or closing costs if the transaction proceeds. The earnest money shows good faith to the seller, indicating that the buyer is committed and reliable. This deposit typically must be made shortly after the contractual agreement is reached, and it can range from a small percentage of the purchase price to a more substantial amount, depending on the real estate market and specific negotiation between the buyer and seller. If the sale goes through, this money is usually credited towards the buyer’s funds needed for closing, reinforcing the importance and role of the earnest money deposit in mortgage transactions. Other deposit types, such as a good faith deposit, security deposit, or cash deposit, may have different purposes or contexts and are not commonly used as part of the mortgage application process in the same way that an earnest money deposit is.