Real Estate Deposit vs. Down Payment

When you’re selling your home, you need to familiarize yourself with the relevant real-estate lingo. You should know the difference between a canopy and an awning; A mortgage and a loan; And most importantly, the difference between a deposit and a down payment.

Believe it or not, there are many home sellers who think that a deposit and down payment are one and the same, but in reality they are not.

A deposit is money given or handed over to the owner when a buyer indicates a sincere desire to purchase the property being sold. This is a token amount that can be as small as a few hundred dollars or as large as 5% of the total purchase price. Deposits may be returned when the transaction is not due to reasons beyond the buyer’s control, and may be forfeited to the seller. When the purchase goes through, the deposit is credited to the buyer and forms part of his down payment.

A down payment, or equity, on the other hand, can be considered a down payment on the property itself. It is paid when the buyer actually decides to buy the house (as opposed to a deposit, where it is paid when the buyer indicates a willingness to purchase the unit). A down payment is the total amount of money a buyer can pay as a partial payment and is worth a larger than normal deposit (10% or more of the total property cost).

It is fairly easy to distinguish. Just remember that a deposit is small and, once the transaction is completed, becomes part of the down payment. The total of these two, and any outstanding balance, should be the agreed upon purchase price of the property.