Know the roles of both deposit and down payment when buying a home

Monday Nov 06th, 2017


They both start with the letter 'd', and they both require a large sum of money to secure the purchase of a home. However, a 'deposit' and 'down payment' are very different.

“A lot of my first-time home buying clients ask me what the difference between a deposit and down payment is,” says Ray Ferris, president of the Ontario Real Estate Association (OREA). “Simply put: a deposit is associated with your offer to purchase a home, while the down payment is associated with your mortgage. The deposit will go toward the down payment.”

Here is more information to help you decide how much to contribute to each:

Deposit – When you submit an offer, normally you are requested to include a deposit to demonstrate a serious intent to buy the property. This deposit will usually be in the form of a cheque, payable to the listing broker, who will place it in a trust account until the deal is completed or terminated. Your deposit provides the seller with some assurance that you will go through with the sale when the day of completion arrives.

When an agreement is reached and the transaction is completed, the deposit will be credited in full towards the purchase price. There is no standard amount for a deposit, but the size of it says something about how serious you are about buying. Your Realtor can help you figure out the right amount to offer.

Down payment – This is the money that you pay at the time of purchase toward the price of your home. Your mortgage loan covers the rest.

How much you contribute as down payment depends upon your specific financial situation. The more you put down, the lower your monthly payments will be. But before you contribute every penny you have to the down payment, set aside a cash reserve for other costs, including legal fees, land transfer taxes, closing costs, moving expenses, and any improvements or renovations you plan to make in your new home shortly after you move in.

More information is available at

Tags: Mortgage

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