What is the difference between a deposit and a down payment in Manitoba?
By: Realtor Scott MooreA deposit is the money you provide at the time of writing an offer.
For a home that is priced around $500k, a common deposit would be around $10-15k. At a purchase price of $750k, you would usually see around $20-30k for the deposit, and at $1M, usually around $50k or so.
If your offer is conditional, and the conditions aren’t satisfied, the deposit will be returned to you. However, provincial law requires that the deposit stay in the brokerage’s trust account for 10 business days after the cheque clears the account, so there will be a delay before your money is returned to you.
The reason for a deposit is to prevent buyers from abandoning deals. If a buyer doesn’t close on the purchase, they will almost always lose their deposit, so the deposit should be an amount of money that is large enough to hold the buyer to the deal. There can also be other costs to the buyer in this type of situation, for example if the vendor ends up selling the house for less than the price the original buyer agreed to, the vendor can also sue the buyer for the difference.
Switching gears, the down payment has to do with how you are financing the purchase, and not the deal itself.
A down payment is the total percentage of the purchase price that you are paying in cash. The minimum down payment is usually 5%. Any down payment under 20% will require a CMHC insurance premium – the amount of the premium depends on the amount of your down payment. The lower the down payment, the higher the premium.
The reason why people get confused is that your deposit forms part of your down payment.
Here’s how it works:
You are purchasing a $500,000 home
You want to make a 10% down payment, so your down payment is $50,000
When you wrote the offer, you gave a $10,000 deposit
On closing you will pay the remaining $40,000, to equal a total of $50,000 in cash
If you already own a home, your lender can arrange it that the cash for the down payment comes from the proceeds of the sale of your home, but you will still need to provide the cash for the deposit when you write an offer.