If you're buying a home for the first time, it's easy to get confused between a deposit and a down payment. Though both are upfront costs in the home-buying process, they serve very different purposes. Understanding the difference can help you plan your finances and navigate the process more confidently.
What Is a Deposit?
A deposit is the amount of money you submit along with your offer to purchase a home, showing the seller that you’re serious. Often referred to as a "good faith deposit," this payment demonstrates your commitment and is typically made when the offer is submitted or shortly after it's accepted. The funds are held in trust by the seller’s real estate brokerage until closing.The deposit amount can vary depending on your agreement with the seller and the local market. In many cases, a higher deposit can make your offer more attractive. It’s important to note that deposits are usually non-refundable unless the conditions outlined in your offer, such as financing or inspection, aren’t met.
What Is a Down Payment?
A down payment is the portion of the home’s purchase price that you pay upfront at the time of closing. The remainder of the purchase price is covered through your mortgage. Your down payment is your initial equity in the property and is paid only after all conditions of the sale have been fulfilled.In Canada, the minimum down payment depends on the price of the home. For properties under $500,000, the minimum is 5%. If the price is between $500,000 and $999,999, you’ll need 5% on the first $500,000 and 10% on the remaining amount. Homes priced at $1 million or more require a minimum down payment of 20%. If your down payment is less than 20%, mortgage loan insurance is mandatory, which protects the lender and typically adds between 0.6% and 4.5% to your total mortgage. Your credit history, employment status, and other financial factors may also influence how much you’ll need to put down.
If you’re unsure how much you’ll need for each, feel free to contact me for some professional advice and guidance.