What's the difference?
Deposit vs. Downpayment
This is a great question we get asked frequently. We believe that knowledge is power. Here’s some information regarding the difference between a deposit and a downpayment when purchasing a home and the role they play when submitting an offer.
What is a Deposit?
Deposits come before the downpayment. When a Buyer submits an offer, the deposit is the amount that the Buyer (Purchaser) will offer to secure the property for sale that they intend to buy. Deposits can be:
- submitted with offer or
- after an accepted offer usually 24 hours after fully signed Agreement or
- at a mutually agreed date and time
How much deposit do I Offer?
Deposits can range in amounts and demonstrates to the Seller that you are serious about purchasing their home. A larger deposit can give the appearance of more financial security and the ability to purchase.
Remember– that with deposits there comes risk. It can be non-refundable once conditions if any have been fulfilled or waived. Make sure that you include conditions in your offer to give you the time you require as a Buyer to get what you need regarding finances, inspection , inspection and/or the sale of your home.
Offer Accepted- What's next?
Once accepted the deposit is held in a trust account by the Listing Brokerage. There are scenarios when purchasing a home directly from the Seller or a discount brokerage where the deposit will be held in trust by the Seller’s Lawyer. How the deposit is being held should be included within a schedule in the Agreement of Purchase and Sale. Your deposit will be held until the day of closing and applied toward the agreed on purchase price. There are times when you can offer multiple deposits throughout the waiting period before closing. These will also be held in the trust account and applied to the agreed on purchase price on the date of completion.
What is a Downpayment?
- Your downpayment is a combination of your deposit(s) and any other money you will pay toward the purchase price.
- The balance remaining if any will be covered by mortgage financing.
- Save as much as you can for the down payment. The larger the down payment, the smaller the mortgage, which can end up saving thousands in interest and loan charges.
- Down payments can vary depending on the purchase price of the home (check the next section)
- You will need the funds for your downpayment released on the day of closing. These funds will be transferred to your Lawyer from your lender/broker and wired to the Sellers Lawyer. Once the transaction has been paid according to the agreed upon amount you will receive the keys to your new home
How much down payment will i need?
Specific amounts for down payment vary depending on the purchase price of the home. If your down payment is less than 20% of the price you agreed upon, the home you will be required to obtain mortgage default home insurance.
- If you have a poor credit history or are self-employed your lender could require a larger downpayment. Have clear conversations prior to submitting an offer with your Lender or Mortgage Broker.
- The minimum down payment must come from your own funds. Saving for a down payment is better and will minimize your debts.
- Check out the Government of Canada’s site regarding Down Payments and Mortgages https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html
The minimum down payment based on the purchase price of the home
- $500,000 or Less- 5% of the purchase price
- $500,000 to $999,999- 5% of the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000 (EX. for a $750K home: 5% of 500K = $25K and 10% of 250K = 25K so total minimum down is $50K)
- $1 Million or more- 20% of the purchase price
Have more questions? We would love to help! Making Home Buying a Reality -One Story at a Time.
