Deposits V. Down Payments

May 18, 2018

They sound similar and are often confused.


The down payment is the amount you intend to pay upfront when purchasing a home. The rest will be in the form of a loan. The minimum down payment required to buy a home is 5% of the total purchase price. This money can come from savings, an RRSP or in the form of a gift from a family member. You can’t borrow the down payment.


The deposit is a cheque written at the time the offer is made. The deposit informs the seller that the buyer is acting in good faith and has the resources to buy the home. The deposit also acts as security should the buyer attempt to back out of the sale as the deposit is non-refundable once the sale is finalized.


The deposit usually ranges from $5000-$10,000 depending on the purchase price of the home and the amount of the buyer's down payment. A larger deposit indicates a position of financial strength to the seller and makes an offer look more attractive. A poor down payment does the opposite.


When an offer is accepted the deposit will be held in trust at the buyer's real estate brokerage. Once the sale is finalized the deposit becomes non-refundable and forms part of the total down payment. Should the sale not become final for any reason the deposit is returned, in full, to the buyer and the home goes back on the market.





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