Real Estate Terms: Down Payment vs Deposit

Hello Ottawa house hunters.  We’ve been fielding a few calls on the difference between the deposit and down payment lately so here’s a short explanation to help you sort them out.

A small deposit cheque vs A large down paymentDeposit:  This is the good faith consideration you give to the seller or listing brokerage when you make an offer to buy a home.  In Ottawa the deposit is typically 1-3% of the purchase price of the home you’re buying.  When you close it counts against what you own on the home, for example if your deposit to the sellers was 3%, only the remaining 97% is due on closing.

The Deposit check is usually due within 24h of an offer being accepted by both the buyers and sellers.  This will be before the inspection and conditions are carried out.  Some times the deposit check will be submitted with the offer, this is done to show the sellers a buyer is really, really serious.
With real estate brokerages the deposit is held in a trust account to secure the money and make sure it’s available to be refunded if the sellers or buyers withdraw from the deal.

Down Payment:  Represents the total amount of money you are putting into the home purchase that is not part of the mortgage.  The minimum to qualify for mortgage loan insurance from CMHC is 5% and you no longer require mortgage loan insurance if you put 20% or more down.  For more on the cost of buying a home including mortgage lone insurance check out this tread.
Your Down Payment does include your Deposit.
Example:
Bob and Jen by a $400,000 home with 25% down, $100,000 from the sale of their previous home.  When they made an offer they gave a $10,000 deposit.  On closing they will provide the additional $90,000 of the down payment and the remaining $300,000 will be the mortgage.
Hope this helps you understand real estate a little better.
As always if you have any real estate questions ask them below, or contact us directly at 613-788-2113
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