How you make an offer on a house requires a buyer to meet certain minimums, most notably as it relates to a down-payment.

How much is a down payment on a house? For a lender to grant the remaining funds to finance a real estate purchase, you are legally required to provide a minimum down-payment of 5% of the purchase price of the home and sometimes higher.

Here are the ins and outs of down-payments and deposits when making an offer on a house.

How Down Payments Work In Canada

  • For a home priced at or under $500,000, the minimum down payment is 5% plus mortgage insurance.
  • For a home between $500,000 and $1.5 million, the minimum down-payment is an additional 10% for the portion above $500,000 plus mortgage insurance.
  • For a home valued at over $1.5 million, the minimum down payment is 20%.

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Difference Between A Deposit And A Down-Payment

A down payment is paid on the closing day of the home purchase. However, the deposit is paid earlier along with the offer and has no standard required amount. Some buyers submit a deposit of 1-5% of the purchase price in an attempt to entice the seller to close quicker.

In a hot market, a deposit can grab a seller’s attention. They are typically provided by certified cheque, bank draft, or money order. A deposit usually becomes a part of your down-payment upon closing.

Why A Seller May Request A Deposit

A buyer may pre-emptively offer a deposit, however, a seller may also request or require a deposit. A seller typically requests a deposit because they only want to handle serious buyers. They want to ensure, as best as they can, that who they’re negotiating with has the financial security to close the sale.

How You Pay A Deposit To Buy A House In Canada

A deposit can work in a multitude of ways as they are not regulated in the same way that down-payments are. When a seller accepts your offer, a deposit is typically paid within 24 hours, immediately upon acceptance, or within a certain number of business days. The deposit is held in trust by either the seller’s lawyer or your lawyer in a legally protected, interest-bearing account.

A deposit can be negotiated, as can aspects of a deposit, such as if it’s paid in cash or bank draft. Mortgage funds cannot be used for the deposit which means a buyer will have to use their own savings or borrow from a line of credit.

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How You May Lose Your Deposit

The key thing to remember about deposits in buying homes in Canada is that you can lose your deposit if you breach the purchase agreement without valid conditions. A seller is legally allowed to keep your deposit if you do not follow through with the legal contract you signed.

That said, if your offer stipulates conditions that are not met, such as a home inspection, your deposit is fully refundable.

If the conditions are not fulfilled and it’s the seller’s fault, the buyer’s deposit is most often refunded. It’s only when a buyer backs out unconditionally that the seller may claim the deposit or that a legal dispute may arise.

This is why it’s essential to work with a real estate lawyer and real estate agent to get the agreement of purchase and sale right.

Come to the table with the best deposit and down-payment you can when you make an offer on a home in Canada. Are you seeking to purchase real estate in Toronto, Etobicoke, or the GTA?  Reach out to the experts at Adrian + Andrea at info@adrianandrea.com or call (416) 319-6893 for more information.