Video: What's the Difference Between Deposit Vs. Down Payment

Deposit vs. Down Payment: Know the Difference, Buy with Confidence!

When purchasing a property, you’ll come across two important financial terms: deposit and down payment. While they are related, they serve different purposes in the home-buying process. Many first-time buyers find this distinction confusing, so let’s break it down in a clear and simple way.

What Is a Down Payment?

Your down payment is the portion of the purchase price that you pay upfront when buying a home, with the remainder covered by your mortgage (unless you’re paying in full with cash).

For example, if someone says, “I’m buying an $800,000 property and putting 20% down,” this means they are making a down payment of $160,000, while the remaining $640,000 will be financed through a mortgage.

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What Is a Deposit?

Your deposit is actually a part of your down payment that you must pay immediately when your offer is accepted.

Here’s how it works:

When submitting an offer on a property, you include a deposit amount in your Agreement of Purchase and Sale.
In Toronto, deposits are typically a minimum of 5% of the purchase price.
Once your offer is accepted, your deposit is due within 24 hours.

Using our $800,000 property example:

If your total down payment is $160,000, and your deposit is $40,000, you’ll need to pay the deposit immediately upon offer acceptance.
The remaining $120,000 of your down payment will be due on closing day.

Key Tip: Be Financially Prepared

Since your deposit is due right away, it’s a smart idea to have at least 5% of your maximum budget liquid and readily available before starting your home search. This ensures you’re prepared to act quickly when you find the right property.

By understanding the difference between a deposit and a down payment, you’ll be in a stronger position to navigate the home-buying process with confidence!