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FAQ #6 - WHAT'S THE DIFFERENCE BETWEEN A DEPOSIT AND A DOWNPAYMENT?

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Real Estate Agent with Sotheby's International Realty Canada - Brokerage

FAQ #6 - WHAT'S THE DIFFERENCE BETWEEN A DEPOSIT AND A DOWNPAYMENT?




Your Favourite Gananoque Realtor gets asked this question a lot.   Often, we forget that not everyone is familiar with the terminology we throw around.

When a Buyer decides to make an offer on a property in Ontario, his Realtor will prepare an Agreement of Purchase and Sale.  Within this document will be a section pertaining to the Deposit which reads as follows:






"DEPOSIT: Buyer submits ..........................................................................................................................................
(Herewith/Upon Acceptance/as otherwise described in this Agreement)
................................................................................................................. Dollars (CDN$).......................................
by negotiable cheque payable to........................................................................................................ “Deposit Holder” to be held in trust pending completion or other termination of this Agreement and to be credited toward the Purchase Price on completion.  For the purposes of this Agreement, “Upon Acceptance” shall mean that the Buyer is required to deliver the deposit to the Deposit Holder within 24 hours of the acceptance of this Agreement. The parties to this Agreement hereby acknowledge that, unless otherwise provided for in this Agreement, the Deposit Holder shall place the deposit in trust in the Deposit Holder’s non-interest bearing Real Estate Trust Account and no interest shall be earned, received or paid on the deposit."

 

Different markets will have different practices with regard to what is an acceptable deposit.  In our Gananoque area, deposits are regularly seen varying from $100.00 up to $10,000.00.   They are used to secure the contract and if all goes well, and the Buyer proceeds with the purchase, the Deposit will be applied towards the purchase price.

The Deposit cheque is cashed immediately upon presentation to the Listing Agent and deposited into that Brokerage's Trust Account.   Buyers need to be aware of this and prepared to have the funds available.  (credit cards are not acceptable forms of payment)

Should the purchase not proceed and the Agreement of Purchase and Sale becomes null and void, then a Mutual Release will be completed by both the Buyer and the Seller and the deposit will be returned to the Buyer without interest nor penalty. (unless otherwise stipulated in the Agreement)

It is important to note, the Seller does not keep the Deposit if the sale falls through.  The Seller does not ever have the Deposit in his possession.

A Downpayment is the amount you intend to apply to the purchase price outside of your borrowed funds, ie your mortgage.  

For example; 

You are purchasing a home for $100,000.  You may have applied for a 75% mortgage  ($75,000)  and are prepared to apply the other 25% ($25,000) as a downpayment.   The more of a downpayment you have, the less of a loan/mortgage will be necessary.  This means you have $25,000 that can become Cash to be applied to the purchase price.

This is something you will discuss with your Mortgage Broker prior to even beginning your house hunting.  You will want to know what you can afford before you get your hopes up.   There's nothing worse than falling in love with a home and then discovering it is out of your budget!!  Your Mortgage Broker will discuss payment options, interest rates, etc and together you will decide in what price range of a house to begin searching. 

Most Realtors will not begin to show you homes until you have met with a Mortgage Broker and been pre-approved for financing. 

So to summarize, a Deposit is a small amount of funds to be presented with your Offer and cashed immediately and a Downpayment is the larger amount of funds necessary to purchase the home outside of your approved mortgage amount.

If you have any questions about this, or any others in the series, please don't hesitate to contact Susan Emo.  I am only as good as the team of professionals with whom I surround myself!


FAQ #7

FAQ #8

FAQ #9

FAQ #10 

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If you're thinking about selling, I'd love to meet with you and provide a Market Analysis and go over my Marketing Plan - it is the little things that make the difference.**

 Susan Emo
Sales Representative,
Sotheby's International Realty Canada, Brokerage*
Kingston, Ontario

www.SusanEmoSellsHomes.com

 Serving the Kingston, Gananoque and the 1000 Islands Region
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Comments (2)

Roger D. Mucci
Shaken...with a Twist 216.633.2092 - Euclid, OH
Lets shake things up at your home today!

Great explanation Susan............I actually knew the answer to this one!  I can see how it could be confusing to some though.

Jun 02, 2012 04:46 AM
Susan Emo
Sotheby's International Realty Canada - Brokerage - Kingston, ON
Kingston and the 1000 Islands Area

yay Roger!  It is something we get asked regularly.  It is so easy to get caught up in the lingo!

Jun 03, 2012 10:10 AM