In my years as a real estate professional in Steinbach and much of SouthEastern Manitoba, I’ve helped many people navigate the myriad of confusing things that come up while shopping for their next home.
One of the most common questions is, “What’s the difference between a deposit and a down payment?”
Allow me to help clear that up.
What is a Deposit (and Why should I Make One?)
A deposit is money that accompanies the Offer to Purchase. Basically, it’s trust money, the point of which is to show that you are serious about offering to buy the house, and can be trusted not to waste the seller’s time or somehow torpedo their efforts to sell their house to others. Your money says you will not change your mind and, if you do, you’re willing to compensate them for their wasted time.
What Happens to the Deposit If Your Offer is NOT Accepted?
Nothing. The cheque will not be cashed. It will be returned to you.
What Happens to the Deposit If Your Offer IS Accepted?
If your offer to purchase is accepted, the Cheque will be deposited into the listing broker’s trust account. Later, when the deal goes through and the purchase becomes official, the funds are forwarded to the lawyer’s office and distributed toward the purchase price according to standard practice.
TIP: Bigger deposits give you an advantage. The bigger your deposit, the more seriously the Seller will take you and your offer.
What happens if they deposit our check and then we can’t meet the conditions on the offer? (What if we don’t get financing? What if the home inspection fails? What if…?)
We will fill out a simple form requesting the deposit to be released and the funds will be returned to you.
What is a Down Payment?
The down payment is what your lender will require of you before approving your mortgage. This is between you and the lender and does not involve the real estate agent or seller.
For a traditional mortgage you will need 5% of the sale price for a down payment.
When arranging your down payment, if you can manage to put down 20% of the purchase price (or more), you will avoid the cost of paying an insurer like CMHC or Genworth.
If you do not have sufficient down payment available and you have a steady job, stable income, and a good credit rating, I can hook you up with a mobile specialist who has different products available and you may possibly be eligible to buy without a full down payment.
There are LOADS of other questions that crop up in real estate.
Good news – I have some awesome resources to set you up for a successful and pleasant buying experience.
Check out my HomeBuyer’s Information Package HERE