Deposit vs. Down Payment: Key Differences for Homebuyers

When you’re buying a home, two terms often cause confusion: deposit and down payment. While they’re related, they serve very different purposes in the homebuying process.

Here’s what you need to know.

What Is a Deposit?

A deposit is the money you provide when you make an offer on a property. Think of it as a show of good faith that proves you’re serious about purchasing.

• How it works: Typically, you provide a certified cheque or bank draft that your real estate brokerage holds in trust. If your offer is accepted, the deposit remains in trust until the deal moves forward. If negotiations fall through, the deposit is refunded.
• Connection to your down payment: Once the sale is finalized, your deposit becomes part of your total down payment.
• Why it matters: The amount is negotiable, but a larger deposit can make your offer more attractive in a competitive market. Keep in mind, however, that if you back out after conditions are removed, you risk losing your deposit.

What Is a Down Payment?

Your down payment is the amount you contribute toward the purchase price of your home when securing a mortgage.

• Minimum requirement: In Canada, the minimum down payment is 5% of the home’s purchase price. Anything less than 20% requires mortgage default insurance.
• Sources: Down payments can come from your savings, the sale of another property, RRSP withdrawals (through the Home Buyers’ Plan), a gift from family, or even borrowed funds.

Example: How They Work Together

Imagine you’re buying a $400,000 home with a 10% down payment ($40,000).

• When you make your offer, you provide a $10,000 deposit.
• Once conditions are met, that deposit is transferred to your lawyer’s trust account.
• At closing, you add the remaining $30,000 to complete your full down payment.
• The lender provides the rest—$360,000—through your mortgage.

The Bottom Line

Your deposit shows commitment and secures your offer, while your down payment is what makes the mortgage possible. Together, they work hand in hand to get you into your new home.

📞 If you’d like clarity on deposits, down payments, or any other part of the mortgage process, let’s connect. I’d be happy to walk you through it step by step.