Understanding earnest money deposit - dallas multifamily

[Sanjoy V.]

I am trying to understand the earnest money technicalities. Have a novice question here, bear with me. If you are making a $125k earnest money deposit on a lets say 5.5 million dollar deal. I have been told, it will be applied to closing costs as credit. Lets say for a 20% down, you come up with close to $1,350,000 cash (included 4% closing costs). If you gave away $125k as earnest money out of the 1.35 million cash, do you have to come up with additional $125k to make up the difference? Because I can't imagine there is going to be $125k closing costs. Or do you ask the seller to give back the difference at closing. Because, I don't want to be losing actual $125k hard cash, I'd rather have the bank pay that and I pay 20% of it.

[Lennon Lee]

The earnest money is wired when you execute the PSA. (These days we have part of that earnest money go “hard” or non-refundable on day one or after hitting certain hurdles of the due diligence process.)

When it’s time to close you come to the closing table with your downpayment minus the amount you already put up as earnest money. (If you raised capital from investors then what is common practice is that you come to the closing table with the downpayment plus any additional capital raised for renovations and reserves, and out of that money you pay yourself back the earnest money amount and other out of pocket expenses you incurred to bring the deal to closing)