Buyers Guide: Deposit vs. Down Payment

Deposit vs. Down Payment

So you’re in the market for a new home and you think you have found one. Pump the brakes before you open your wallet and make a deposit or a down payment. These are two very different things and can be confusing to people. If you do not know the difference between the two, do not rush into anything or make any off the cuff choices. First, understand the difference between and impact each has.

Let’s start with a deposit. To put it simply, a deposit is “good faith” money. As a buyer you put this down to secure a home. In our Windsor-Essex market, they are only expected when you reach an agreement with the seller that has become firm, by saying all conditions have been removed. This deposit will end up forming a part of your eventual down payment. This makes it essentially a part of the full payment for the new home. A typical deposit amount is around 5% of the agreed upon purchase amount.

On the flip side, we have the down payment. Your down payment is all of the money, including the aforementioned deposit that you will be putting towards the purchase of your new home. This down payment money is the portion not covered by the mortgage. A typical down payment on a new home can range from as low as 5% all the way up to the full 100% cost of the new home.

If you are a first time home buyer, this may not necessarily be as big of a deal as if you are a current homeowner. Say you are looking to upsize. Well, that 5% deposit can pose an issue for many homeowners. With most cash tied up in the current house, having an additional 5% available to upsize can be a challenge.

This distinction is critical and you should be both aware and prepared with the info before you start shopping. Don’t forget, the equity from your home will be freed up once your soon to be previous house is sold. At this point you can be used as a part of your down payment of your future home. More than likely you will be required to have cash for a deposit for the new home before your previous home has sold.

Don’t be shocked when this time comes. By knowing this, you can navigate the tricky process smoothly when it is time to make the move. The best way to do this is having a trusted agent who can help you navigate the process.

Here at Jump Realty our agents pride themselves on making sure their clients are happy and their real estate experience is smooth and effortless. Putting in the work behind the scenes to make sure you are stress free. If you are looking to buy, sell, or if you have any questions, please feel free to contact us, and find out how we can help you. To some great home on the market now click here or if you’re looking for a neighbourhood, click through at the top right corner.

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