Today’s Real Estate Education is all about clearing up the confusion between what a down payment is and how it differs from a deposit.
A down payment is the amount of money you are putting down towards the purchase of a home. This is due on closing. The remaining amount is what a lender will give you to purchase a home in the form of a mortgage.
A deposit, however, is an amount of money you put down to secure the property before closing. Think of it as a gesture of good faith. A deposit shows the seller you’re serious and committed to buying their property.
In Toronto, a deposit is usually 5% of the agreed to selling price. This amount, however, needs to be liquid. This means you need to have access to it within 24 hours after an agreement has been reached between the buyer and seller.
Lastly, the deposit becomes part of the overall down payment on closing. For example, if you are applying for a conventional non-high risk mortgage, a lender requires you to pay at least 20% of the home’s purchase price. If you are in Toronto and have already paid the 5% deposit, on closing you would need to come up with the additional 15%.