Deposit vs. Down Payment: Understanding the Difference When Buying a Home
If you’re thinking about buying a home, you’ve probably heard the terms deposit and down payment used interchangeably. While they both involve money you put toward your home purchase, they serve different purposes. Understanding the difference can help you navigate the home-buying process with confidence.
What Is a Deposit?
The deposit is the money you put down when you make an offer on a home. It shows the seller you’re serious about buying and is typically submitted within 24 hours of an accepted offer. The deposit amount varies depending on the location and market conditions, but in many cases, it’s around 5% of the purchase price.
Why Do You Need a Deposit?
- It reassures the seller that you’re committed to the purchase.
- It’s held in trust (usually by the listing brokerage or lawyer) until closing.
- It eventually goes toward your total down payment.
What Is a Down Payment?
Your down payment is the total amount of money you’re putting toward the home’s purchase price. In Canada, first-time homebuyers can buy a home with as little as 5% down for homes under $500,000. If the home price is higher, the down payment requirement increases.
Key Facts About Down Payments in Canada:
- Homes under $500,000 require a minimum 5% down payment.
- Homes between $500,000 and $999,999 require 5% on the first $500,000 and 10% on the remaining amount.
- Homes $1 million and above require a minimum 20% down payment.
- If your down payment is less than 20%, you’ll need mortgage loan insurance (such as CMHC insurance).
How Does the Deposit and Down Payment Work Together?
Think of your deposit as an early installment on your down payment. The deposit amount you provide when making an offer is applied to your total down payment at closing.
For example, if you’re buying a home for $500,000 and planning to put $25,000 down (5%), and you already provided a $10,000 deposit, then at closing, you’ll only need to provide the remaining $15,000 to complete your down payment.
Are You a First-Time Homebuyer?
If you’re new to the home-buying process and have questions about deposits, down payments, or mortgage options, our team is here to help! Navigating the real estate market can feel overwhelming, but with the right guidance, we’ll make your move a positive one.
📩 Contact us today for expert advice on buying your first home!
At the Tara Molina Real Estate Group, we’re here to help you make informed decisions and and to help you protect your investment.