Deposit VS Down Payment
SOLD! You just bought your dream home and now here comes all of the new terms and paperwork. Then you ask yourself is there a difference between a deposit and a down payment? Yes! Let us explain the difference!
The deposit is the money you pay upfront to secure or commit to the Agreement of Purchase and Sale for a property. Deposits are usually in the form of bank drafts or certified checks. The deposit is usually 1-5% of the purchase price.
When an offer is accepted, the deposit is usually held by the listing brokerage in a trust account.
The down payment is the amount you pay to the seller to be eligible for financing.
Once the offer is accepted and you have paid the deposit, then comes the down payment. The down payment is the amount of money you put towards the purchase price and can help you pay a lower mortgage rate! The down payment represents a percentage of the full purchase price.
For example, many homebuyers make down payments of 5% to 25% of the total value of the home and a bank or other financial institution covers the remainder of the costs through a mortgage loan.