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Difference between Deposit & Down Payment in Real Estate

Fiduciary Fridays
8
Sep

Difference between Deposit & Down Payment in Real Estate

This week on Fiduciary Friday Joe breaks down the difference between a Deposit and Down Payment when buying Real Estate.

What Is A Deposit?

A deposit is an amount of money required, when an offer is accepted on a property. Learn more about the offer process here. It is held in a trust account by the listing brokerage until the closing of the property. The offer may have conditions, that are required to be met before closing.  If these conditions are not met, the deposit is refunded.  If all the conditions are met and the sale of the property closes, the deposit amount is credited to the down payment on the property.

What Is A Downpayment?

A down payment is the amount of money your lender (a bank or mortgage broker) requires, for you to purchase the property.  If you are a first time buyer your lender may require a five percent down payment on the total purchase price of your home.  Are you are looking for an investment property? Your lender may require twenty percent down payment of the total purchase price.  While with a commercial property, the down payment required may be thirty-three percent or more. First time home buyer? Ask Joe’s advice on how to start the process on Facebook here.

How Do A Deposit And Downpayment Work Together?

When you decide to make an offer on a property, a deposit will be taken, held in trust, until the closing date of the property; while assuming all the conditions are met.  That deposit is then credited toward the down payment of your home.

Need an example?

You have made an offer of $200,000 on a home and the offer has been accepted. You are required to put down a deposit of $5,000 held in trust by the listing brokerage. All the conditions have been met and the sale of the house closes.  Your lender requires a 5% downpayment on your new home. So you need $10,000 (5% of purchase price) as a down payment.  You have already put a $5,000 deposit on your home when your offer was accepted.  You now need an additional $5,000 to add to the deposit to come up with the $10,000 down payment.  Make sense? No? Still confused on the difference between a deposit & down payment? Questions? Email Joe here

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