Earnest money is put up at the time you make an offer on a property. In your offer, you would specify the amount and the time it is due. For example, in our contract offer forms the buyer can pay it simultaneously with the offer, or upon acceptance or within X days of acceptance. The funds are put into escrow with the brokerage or with a title company or attorney's office escrow account. Earnest money indicates that you are a serious buyer. A contract is not valid without some 'consideration' and most of the time what we use as consideration is money. The amount of earnest money is negotiable. I'm not sure why your broker said $1500. When you say broker, are you referring to the mortgage broker or the real estate broker?
The funds are applied to either your down payment or closing costs when you close. Earnest money is not paid directly to the USDA. It is held in escrow until closing for you. If you default on the contract, you are subject to lose that deposit (if you default, not if the seller defaults). Read the contract carefully before you sign.
Good info. Well the amount was determined by the mortgage broker. Not sure why they would tell me that amount if it is negotiable.
Did your mortgage broker tell you that you had to have $1500 of your own money up? If so, it might be a requirement of the type of loan you are getting. I'm not familiar with USDA loans (as we don't have a USDA area near my territory). But every loan has different criteria. Ask your mortgage broker how he came up with the $1500 amount.