RSS

Understanding the Difference Between a Deposit and a Down Payment When Buying a Home in Canada

When you're buying a home—especially for the first time—the terminology can be confusing. Two of the most commonly misunderstood terms in Canadian real estate are "deposit" and "down payment." While they’re both related to the money you put toward purchasing a home, they serve very different purposes. Let’s break down what each term means, how they’re used, and what you need to know as a homebuyer in today’s market.

💰 What Is a Deposit?

The deposit is the money you put forward with your offer to purchase a home. In most Canadian markets, it’s customary to include a deposit as a sign of good faith. This shows the seller that you’re serious and committed to the purchase.

  • Amount: Typically 1–5% of the purchase price, but it can vary depending on local market conditions and negotiations.

  • When it's paid: Usually within 48 hours (or as specified in the contract) of your offer being accepted.

  • Where it goes: The deposit is held in trust (usually by the buyer’s real estate brokerage).

  • What happens to it: The deposit becomes part of your down payment if the sale goes through. If the deal falls apart due to conditions (like financing or inspection), you may get it back—depending on the terms of your agreement.

Example: You make an offer on a $600,000 home and include a $20,000 deposit. If your offer is accepted, that deposit counts toward your total purchase funds.


🏦 What Is a Down Payment?

The down payment is the total amount of money you are putting toward the purchase price of the home, and it's separate from the mortgage. In Canada, the minimum down payment depends on the price of the property:

  • 5% for homes priced up to $500,000

  • 5% on the under $500,000 portion, and 10% on the portion between $500,000 and $1.5 million

  • 20% for homes priced at $1.5 million or more

  • 20% is considered normal for investment properties

The down payment is due on closing day and directly affects the amount of mortgage you’ll need from your lender.

Continuing our example: If your down payment is $60,000 on that $600,000 home, and you’ve already paid a $20,000 deposit, you’ll need to provide the remaining $40,000 on closing.


🧾 Key Differences at a Glance

Feature

Deposit

Down Payment

When Paid

With or shortly after the offer

On closing day

Purpose

Shows serious intent to purchase

Reduces the mortgage amount

Held By

Held in trust

Paid directly to the seller/lender

Refundable?

Sometimes, depending on conditions

No – it's part of the purchase price

Part of Down Payment?

Yes

Includes the deposit


💡 Why This Matters for Canadian Homebuyers

Understanding the difference between a deposit and a down payment helps you prepare financially and avoid last-minute surprises. Here are a few quick tips:

  • Have your deposit ready when you start house hunting. It needs to be accessible (not locked in investments or RRSPs with withdrawal restrictions).

  • Budget for the full down payment, minus your deposit amount.

  • Work with a REALTOR® and mortgage professional to ensure all your paperwork and finances are in order, especially if you’re buying with conditions like financing or inspection.

  • Avoid large loans before a home purchase as this will affect your debt service ratio

  • Avoid moving large sums of money between accounts as the bank needs to be able to track funds for at least 90 days


👋 Let’s Talk!

Whether you're a first-time buyer or an experienced homeowner, we're here to help you every step of the way. At David Lowes Personal Real Estate Corporation, we provide clear, honest guidance to help you make confident decisions in the Cowichan Valley and beyond.

Have questions about deposits, down payments, or the homebuying process in general? Reach out anytime—I’d be happy to walk you through it.

Read
Categories:   2025 | Appraisal | April | Assessment | August | Balanced Market | Bank loan | Budget | Bully Offer | Buyer | Buyers | Buyers Market | Buying | Children | Choosing a realtor | CO detector | Cold | Community | Conditions | Cowichan Valley | Cowichan Valley Realtor | Curb Appeal | Custom Home | Debt | deposit | down payment | Duncan | Expenses to Expect | Exterior | Family | February | Fireplace | FireSmart | First Time Home Owner | Fresh Start | Front Door | Goals | Holding for offers | Home | Home Flipping | Home Goals | Home Inspection | Home Maintenance | Home Selling Tips | Home Sweet Home | Home Value | Homeowner tips | Housing Market | Insurance | Investment | January | July | June | landlord | Landscaping | Listing | Listing Agent | Loan | Loan Qualification | Local Realtor | Love | March | Market | Market Conditions | Market Value | May | Mortgage | Moving | Negotiation Skills | Neighbourhood | New Build | New Year | Offer | Offer Price | Outdoor Space | Packing | Preparation | Prepare your home | Preventative | Professional Experience | Protecting | Provide value | Ready to show | Real Estate | Real Estate Market | Real Estate Tip | Real Estate Tips | Real Estate Update | REMAX | rentals | Safety | Sale | Sell | seller | Sellers Market | selling | Showings | Skiller Realtor | Spec Home | Spring | Stage your home | Staging | Subject to sale | Subjects | Support | Survey | Tax | Tax Tips | Tenants | Tenants Rights | Time Clause | Vacation Home | Vegetation Management | Weather | What to do first | Why it hasn't sold | Wildfire | Wood
MLS® property information is provided under copyright© by the Vancouver Island Real Estate Board and Victoria Real Estate Board. The information is from sources deemed reliable, but should not be relied upon without independent verification.