Good Life Team

What is the difference between the option fee and earnest money in Texas?

On a Texas resale contract, the option fee buys you the right to walk away for any reason during the option period, usually 7 to 10 days. The earnest money shows the seller you’re serious and is often about 1% of the price. Under the current TREC resale contract, both go to the title company within 3 days of the effective date. If you terminate during the option period, the seller keeps the option fee and your earnest money comes back to you. If you close, both are credited to you at closing.

By Stephen Harris, Good Life Team | October 27, 2026

Two checks, due three days after your offer is accepted, decide how much money you have at risk on a home near Fort Hood.

Most buyers we talk with have never heard the words “option fee” before they come to Texas. Other states handle this with an inspection contingency and a single deposit. So when a PCS buyer from Virginia or a first-time buyer in Killeen sees two separate checks on a contract, the confusion makes sense. Nobody explained it, and the two checks follow very different rules.

Here’s how each one works, who holds it, and the moments when you can lose it.

How the option fee and earnest money work on a Texas contract

Almost every resale home near Fort Hood is bought on the TREC One to Four Family Residential Contract (Resale), form 20-18. TREC is the Texas Real Estate Commission, and its forms set the rules both sides agree to.

The option fee

The option fee is what you pay for the right to change your mind. During the option period, you can terminate the contract for any reason. A bad inspection, a commute you hate, a gut feeling. You don’t have to explain it.

• How much: a small, negotiated amount, usually a few hundred dollars. There’s no set number in Texas.
• How long: also negotiated. Seven to 10 days is common in Bell and Coryell County.
• Who holds it: the title company. The contract also lets the title company release it to the seller at any time.
• If you terminate during the option period: the seller keeps it.
• If you close: it’s credited to your sales price.

The earnest money

Earnest money is your good-faith deposit. It tells the seller you plan to close, and it’s the money at stake if you back out without a contract reason after the option period ends.

• How much: often about 1% of the price. On a home at the Fort Hood area’s median sold price of $267,000, that’s roughly $2,670. At Killeen’s median of $237,500, roughly $2,375.
• Who holds it: the title company, called the escrow agent in the contract. Texas closes through title companies, so this is the same office that handles your closing.
• If you terminate during the option period: it’s refunded to you.
• If you close: it’s applied to your down payment first, then your closing costs, and anything left over comes back to you.

	Option fee	Earnest money
Typical amount	A few hundred dollars, negotiated	Often about 1% of price
Due	Within 3 days of the effective date	Within 3 days of the effective date
Held by	Title company	Title company
You terminate in the option period	Goes to the seller	Refunded to you
You close	Credited to your price	Applied to your down payment and closing costs

One point surprises VA buyers. A zero-down VA loan still has an earnest money check. The option fee and earnest money are contract terms between you and the seller, separate from your loan. With no down payment on a VA loan, the title company applies your earnest money to your closing costs, and any excess is refunded. VA loans financed about 56% of home sales in the Fort Hood area over the past year, so we walk through this on almost every file.

When you can lose the option fee or earnest money

This is the part we want every buyer to read twice. The contract says time is of the essence for these deadlines, and it means it.

1. You miss the 3-day delivery deadline on the option fee. If the option fee doesn’t reach the title company within 3 days of the effective date, you don’t get the unrestricted right to terminate. You’d be in the contract with no option period at all. If the deadline lands on a weekend or legal holiday, it moves to the next business day.
2. You miss the 3-day deadline on the earnest money. The seller can terminate the contract until you deliver it.
3. You send your termination notice late. Notice must be given by 5:00 p.m., local time where the property is, on the last day of the option period. A notice at 5:15 p.m. on the last day doesn’t count.
4. You walk away after the option period with no contract reason. That’s a default. The seller can terminate and keep your earnest money.

Here’s a simple example. Say you go under contract on a $267,000 home in Harker Heights with a $300 option fee, $2,670 in earnest money, and a 10-day option period. On day 8, the inspection shows a roof at the end of its life and the seller won’t negotiate. You send notice before 5:00 p.m. on day 10. You’re out $300. Your $2,670 comes back. Wait until day 11 with no other contract reason, and the full $2,670 is on the line.

What still protects your earnest money after the option period

The option period ends, but a few contract terms keep protecting your earnest money if something goes wrong later:

• Financing (Third Party Financing Addendum). If you negotiated a buyer approval period and your loan isn’t approved, you can terminate within that window and your earnest money is refunded. If your lender decides the property doesn’t meet its underwriting requirements, you can terminate on or before the 3rd day before closing, also with a refund.
• The VA appraisal. On a VA loan, the addendum includes the VA’s required language: you aren’t obligated to buy, and you don’t forfeit your earnest money, if the price is higher than the VA’s reasonable value. The seller can choose to lower the price to that value. Read more on VA.gov.
• Lender-required repairs. If the lender requires repairs and nobody agrees to pay, or those costs exceed 5% of the price, the contract gives you a way out with your earnest money refunded.

Each of these has its own deadline and its own notice. That’s where who represents you matters. The listing agent works for the seller. Our team tracks every date on your side of the contract, from the day the option fee is due to the last day you can use the financing addendum.

How we set the option period, fee, and deposit near Fort Hood

These numbers are negotiable, and right now buyers have room to ask. As of early October, 51.6% of active listings in the six-city Fort Hood area had already cut their price, and 40% had been on the market more than 90 days. A seller in that spot is often open to a longer option period or terms that fit your schedule.

In our Smart Buyer Plan, we set these terms around three things:

• How fast we can inspect. If you’re buying from out of state on PCS orders, we book the inspector the day the contract is signed and ask for enough option days to get the report, a repair estimate, and a negotiation done.
• How the home is priced and how long it’s been listed. A home that’s been sitting is a different negotiation from one that just hit the market.
• How much cash you want tied up. On a VA purchase, we look at your earnest money alongside the closing costs you’re asking the seller to cover. Our post on buyer closing costs on a $250K home in Bell County shows where that money goes at the closing table.

Two more things we cover with every buyer. First, wire fraud. Before you send earnest money by wire, call the title company at a phone number you looked up yourself to confirm the instructions. Second, new construction runs on a different contract. Builders use their own forms, and their deposits and design-center payments follow different rules. Our post on builder contracts near Fort Hood covers what you can lose there.

Frequently Asked Questions

Do you get the option fee back in Texas?

If you close, yes, in the sense that the option fee is credited to your sales price at closing. If you terminate during the option period, the seller keeps it. That’s the price of the right to walk away for any reason.

How much earnest money do you need to buy a house near Fort Hood?

There’s no fixed amount in Texas, and it’s negotiated in the contract. About 1% of the price is common, which is roughly $2,670 on a home at the Fort Hood area’s median sold price of $267,000. Your agent can tell you what makes sense for a specific home based on its price and how long it’s been listed.

Who holds the earnest money in Texas?

The title company named in the contract holds it as the escrow agent. On the current TREC resale contract, the option fee goes to the title company too, and both are due within 3 days of the effective date. The seller and the seller’s agent don’t hold your deposit.

Do you need earnest money with a VA loan?

Earnest money is a contract term with the seller, so most Texas contracts include it even on a zero-down VA loan. At closing, the title company applies it to your closing costs and refunds any excess. If the price comes in above the VA’s reasonable value, the VA language in the financing addendum protects your earnest money.

What happens if I miss the option period deadline in Texas?

Your unrestricted right to terminate ends at 5:00 p.m. local time on the last day. After that, you can still terminate under another contract term, like the financing addendum, if one applies. Walking away without one puts your earnest money at risk.

The short version: the option fee is the small amount you pay for a short window to walk away, the earnest money is the larger deposit that stays protected as long as you meet your deadlines, and both sit with the title company until closing.

If you’re buying in the Fort Hood area, whether on PCS orders, for a new job, or for your first home, book a free Smart Buyer Plan call with our team. In 30 minutes we’ll walk through your budget, your timeline, and the areas that fit, and show you how we protect you from the first showing to the closing table. No pressure, no pitch. Book your call here, text or call 256-226-2757, or email stephen@mygoodlifeteam.com.

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About Stephen Harris & The Good Life Team
Stephen Harris is a Texas Real Estate Broker (TX license 677386, All City Real Estate) and leads the Good Life Team, a Central Texas team that represents home buyers in Killeen, Harker Heights, Copperas Cove, Belton, Temple, Nolanville, Hutto, Pflugerville, and Round Rock. The team specializes in relocation buyers, Fort Hood PCS moves, VA loans, and new-construction representation, with roughly 500 closings and about $100M in volume. Their Smart Buyer Plan is built around one idea: who represents you matters, and our job is to protect you.

Sources: Texas Real Estate Commission One to Four Family Residential Contract (Resale), TREC No. 20-18, Paragraphs 5, 7E, 15, and 18B; TREC Third Party Financing Addendum, TREC No. 40-11; CTXMLS closed sales and active listings for Killeen, Harker Heights, Copperas Cove, Nolanville, Belton, and Temple, October 7, 2025 through October 6, 2026, compiled by the Good Life Team; U.S. Department of Veterans Affairs, VA.gov. Market figures are medians and describe the area, not any specific home. The Harker Heights example is illustrative, not a real transaction. This article is general information, not legal or lending advice; Stephen Harris is a real estate broker, not a lender or attorney. Contract terms are negotiated, so read your own contract and ask your agent or an attorney about your situation. Material relationships: this article names no builder, lender, title company, or inspector. The Good Life Team is not affiliated with or endorsed by the Department of Defense, the U.S. Army, or the U.S. Department of Veterans Affairs. Texas law requires all license holders to provide the Information About Brokerage Services form. TREC Consumer Protection Notice. Equal Housing Opportunity.