Deposit versus down payment: What's the difference?

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By Alisa Aragon
DO YOU KNOW THE DIFFERENCE between a deposit and down payment, and when each of needs to be paid?
The deposit is the money that you put down to secure the property that you are purchasing. In other words, proof to the seller that you are serious about buying.
When you make your offer on a home, the seller will require a deposit. There is no set amount. That will depend on the purchase price and how quickly you will close on the sale. The deposit is applied against the purchase price of the property on closing, and will become part of the down payment. If you back out of the deal, for whatever reason, your deposit is lost.
The down payment is the money that you pay up-front when purchasing a property. Down payments typically range between five and 20 per cent of the total value of the property. The minimum down payment required to purchase a property is five per cent. There are different down-payment requirements, based on your specific circumstances.
If you are an employee, you can put as little as five-per-cent down. For self-employed individuals, it can be as low as 10 per cent and if you are purchasing a rental/ investment property, you will need to put a minimum of 20 per cent down. The full amount of the down payment is payable when the sale closes.
Here are some examples:
Example 1:
The Smiths are buying a property with a purchase price of $525,000. They will be making a 10-per-cent down payment ($52,500). They removed subjects and their offer has become a firm deal. At this point they give a deposit of $26,250. When they close, the buyers will need to pay the balance of the down payment of $26,250. Together, the two payments equal a total down payment of $52,500.
Example 2:
The Jones are buying a property that is under construction, and the developer is asking for a 10-per-cent deposit. The property that they are purchasing is $619,900 plus GST. They have given a deposit of $61,990. The total final purchase price, including GST, is $650,895. The buyers are only making a down payment of five per cent ($32,544.75). The buyers will be getting the difference back at the time of closing, after the deductions have been made for the closing costs. Consider working with a professional mortgage expert, who can help you find the best mortgage based on your unique needs.
 
Original article – New Home & Condo Guide, August 18 – September 1st issue.