When your offer to purchase a house is accepted, you will give the seller a deposit toward the purchase price. Why is this required?
What is the purpose of a deposit?
- It provides security to the seller. A deposit gives the seller assurance the buyer is serious about the purchase, has a stake in the agreement, and intends to complete the deal.
- It pre-estimates possible damages. If a buyer breaches a contract, the deposit gives a court a number to work with to calculate damages.
How much is the deposit?
Deposits for re-sale properties can be any amount, but 2% to 10% of the purchase price is typical. A higher deposit may be more attractive to a seller than a smaller one.
In Ontario, the deposit is usually paid by certified cheque or money order.
What is the difference between a deposit and a down payment?
The term “deposit” is not the same as “down payment.” A down payment includes the deposit and is the total amount paid by the buyer, up to the value of the mortgage. The down payment and the mortgage amount together will add up to the purchase price.
The deposit is usually paid when the offer is made. The rest of the down payment and mortgage are paid to the seller at closing.