Mortgage Basics #Home Buying

House Deposit vs Down Payment


There are a number of transactions throughout the home buying and mortgage processes that require money to be transferred by the home buyer to either the seller’s real estate agent, the seller’s lawyer or the mortgage lender. It’s important to understand what each transaction requires, however, to ensure you’ve budgeted the appropriate amount of money to make home buying as stress-free as possible. See: Closing Costs: What are They and How Much Will You Pay?

Two common payments that home buyers – particularly first-time home buyers – use interchangeably are “deposit” and “down payment”. We’ve clarified the differences below as these two payment types are not the same.


Key Takeaways

  • Two common payments in the home buying process that are often mistakenly used interchangeably are “deposit” and “down payment”
  • A house deposit is upfront money often required from the buyer to show the seller there’s interest in buying the home
  • A minimum down payment is mandatory in order to get approved for a mortgage on your new home

What is a house deposit?

When buying real estate, in most cases, you’ll be required to provide an upfront cash deposit, which is used to demonstrate to the seller that you’re committed to making the purchase. And once the home closes, you can redirect those funds towards closing costs and your down payment.

What is a down payment?

A down payment involves putting money towards the purchase of your home. The minimum down payment when buying a house in Canada is 5% of the purchase price for a home valued at $500,000 or less and 10% for the portion of the purchase price above $500,000. 

If you can make a larger down payment than the minimum requirement, your mortgage payments will be lower and it will take you less time to pay off your mortgage. The smaller your mortgage and the lower amount of interest you’ll pay over your time as a mortgage holder, the quicker you can build home equity. See: How Much do You Need for a Down Payment in Canada?

Am I required to pay a house deposit?

Yes, in most cases, you’re required to provide a deposit to the seller as a good faith gesture that you’re interested in buying the home.

Important: One reason why “deposit” and “down payment” could be mistaken for the same payment type is that they typically both equal at least 5% of the home’s purchase price.

How much should I expect to pay for a deposit?

There’s generally no minimum deposit required – the amount is determined by the seller – but a general rule of thumb is at least 5% of the purchase price. On closing day, the deposit is then often put towards closing costs and down payment.

Mortgage payment plans aren’t meant to be one-size-fits-all.

Chat with a nesto mortgage expert & get a mortgage payment fit to you.

How do I pay the deposit?

When buying a home, your deposit is typically made payable to the listing agent or the seller’s lawyer “in trust”. This means the listing agent or lawyer must keep the money in a trust account until the closing date.

Tip: The term “in trust” means that the deposit is being held in a trust account until the real estate transaction closes and the funds are instructed by the real estate agreement or legal professional.

What if the home doesn’t close?

In most cases when deals don’t close, the buyer and seller agree to end the transaction and sign a mutual release. But, when the two parties fail to agree – for instance, when the seller backs out of the deal without just cause – the deposit must remain in the brokerage trust account until a court order is obtained.

Other articles in this guide: “Mortgage & Purchase Process in Canada”


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