What’s the Difference Between a Deposit and a Downpayment?
It’s one of the most common questions we get from buyers—and understandably so. The terms deposit and downpayment often get used interchangeably, but they mean very different things in the home-buying process.
Let’s break it down.
💰 What Is a Deposit?
The deposit is the first chunk of money you put forward when you make an offer on a home. Think of it as your way of saying, “I’m serious.” It shows the seller you’re committed and financially capable of moving forward.
- When is it paid? Typically within 24 hours of your offer being accepted.
- How much is it? There’s no set rule, but 5% of the purchase price is common.
- Where does it go? It’s held in trust and eventually goes toward your downpayment.
📌 Pro tip: While a deposit isn’t technically mandatory, good luck getting your offer accepted without one—especially in a competitive market.
🔐 Can You Lose Your Deposit?
Yes. If you can’t secure financing and haven’t included a “Condition of Financing” in your offer, the seller may keep your deposit. That’s why it’s so important to include conditions that protect you, especially if your mortgage approval isn’t locked in. It’s also important to know that the repercussions of breach of contract can extend far beyond just the deposit, too.
💸 What Is a Downpayment?
The downpayment is the larger sum of money you contribute at closing—it’s the portion of the home’s price that you’re paying upfront and not financing through your mortgage.
Where does it come from? Cash savings, a gift from family, or equity from a previous home.
What’s the minimum? The lowest you can put down in Canada is 5%, but anything under 20% will require mortgage loan insurance, which adds to your monthly costs.
So, while the deposit is your commitment to the seller, the downpayment is your proof to the bank that you’re financially ready to take on a mortgage.
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Don’t Forget About Closing Costs
Budgeting for your deposit and down payment is smart, but don’t stop there. You’ll also need to plan for:
- Land transfer tax
- Legal fees
- Home inspection and appraisal
- Moving expenses
- Real estate commissions (if applicable)
Need Help Making Sense of It All?
That’s what we’re here for. At KT Realty, we’re always happy to answer your questions about buying or selling a home, whether it’s your first or fifth time.
📞 Call us anytime at 1-800-617-0090
📱 Or connect with us on Instagram: @kormendytrott
