Deposit vs downpayment is a question that is asked many times by first time home buyers. Are you considering purchasing a home, but feel totally confused about the difference between deposits vs downpayments and that leaves you with feeling intimidated by the buying process and makes you want to hide in your bed?
Well, it is time for you to come out of your bed, because in this video we are going to share with you one of the most misunderstood concepts when buying a home, deposit vs downpayment, so that you will be confident when at the offer table.
DEPOSIT VS DOWNPAYMENT
Many of our first time home buyers clients come to us ready to buy but don’t understand the difference between a deposit and down payment, so don’t feel ashamed if you don’t. Even re-occuring home buyers struggle with real estate terminology. If you struggled or struggle with real estate terminology which one was it, we invite you to add it in the comments. We want to equipped you with all the tools you need when purchasing a home.
Deposit
Let’s start with the deposit. A deposit is a form of security for the seller. Kinda like when you order furniture from a store. You go in, pick the furniture you like and the sales rep will ask you for a deposit in order to process the order.
Your deposit shows the sales rep that you are serious about the order and they can go ahead and process your order with confidence.
If you change your mind after the order has been placed, the rep will keep your deposit to cover the cost he incurred when he placed the order…like if he already ordered the material or the work already has started.
The same holds true for your deposit. Your deposit is usually due 24 hours after your offer has been accepted. The deposit is held in trust by the listing brokerage until closing. If you cannot close the house, for example, if you change your mind, the seller will keep your deposit.
Downpayment
At closing, your deposit will form part of your down payment. For example if you are putting $50,000 down as a downpayment. You can choose to give a deposit of $10,000. $10,000 will be held in trust 24 hours after the acceptance of the offer, sometimes at the time of the offer, the remainder of $40,000 will be due upon closing day
How Much Is There Downpayment Is Required?
A downpayment can usually range from 5% to 20% of the value of the property. Speaking to a mortgage broker would be best to understand your needs but the rule of thumb is
5% on properties priced below $500,000
10% on properties between $500,000-$1,000,000
20% on properties $1,000,000 and above
Investment properties will require a 20% down payment. As previously mentioned, your downpayment is not due until the closing date. Because you already gave your deposit, you will only need to provide the difference of the down payment minus the deposit.
Buy Not or Wait?
Now that you know the difference between deposit vs downpayment, you may be interested into learning why waiting to buy could actually cost you more. In this blog we will dive deep into numbers to help you make the right decision, buy now or wait.
If you are thinking of buying and are feeling overwhelmed by all the terminology. you are not alone. Contact us and we will help you to make sure you are comfortable in your process.
