Deposit Vs. Down Payment - How Much Liquid Cash Do I Need?

Deposit Vs. Down Payment - How Much Liquid Cash Do I Need?

What does “Liquid” mean?

It means that it is ready to be withdrawn at a moment’s notice. Cash is liquid. Money in your investment accounts that will take a while to get to your account is not liquid.  

You will have to make a trip to the bank to get the funds, which are typically a bank draft. Most institutions don’t allow for an online transaction. Make sure you factor this visit into your day when it’s time to pay your deposit at offer time. Factor in more time if you deal with an online banking institution. 

The Deposit

The Deposit:

An amount of money that puts some ‘skin in the game’ for the buyer in the financial transaction. It is an act of good faith on the buyer’s part which provides a bit of security to the seller. This amount gets applied towards your down payment at closing (when the transaction is complete).   

How much do you need:

Typically, 5% of the sale price is required as a deposit. For example, if your offer is $600,000, your deposit will be $30,000. This amount will usually be paid via certified cheque or bank draft made out to the Sellers Brokerage trust account.  

So, if I haven’t stressed it enough yet, make sure the funds are in your bank account and are readily accessible!  Double-check when major automatic withdrawals come out of your account so that you have sufficient funds.  

You have the option to offer a larger deposit which can make you appear to be a more attractive buying candidate, as it shows financial stability. I have seen upwards of 10% in a multiple offer scenario. 

How fast do you need it:

Needs to be paid within 24 hours of offer acceptance. 

So… fast. 

Can you lose your deposit?

Absolutely. If your offer is accepted by the seller and your financing falls through causing you to default on the purchase, then no, you don’t get to keep your deposit. In fact, the seller can sue you to collect money for damages and other fees on top of that amount.  

This is why I work to educate my buyers; to better prepare you for this transaction and to avoid any disappointments. You need to be in the game if we’re going to win.  

The Down Payment

The Down Payment:

The down payment is an amount saved up by you that gets paid toward the purchase price of the home. The mortgage covers the rest. The down payment comes into play closer to closing. Your lawyer will be dealing with this transaction. 

Again, your down payment must be readily accessible when it comes time to pay it. Depending on the closing date of the home, you have some time to transfer funds from your investment accounts.  

How much do you need?

The minimum depends on the purchase price of your home and your mortgage provider
For $500,000 and less, the minimum down payment is 5% (which works out to be $25,000 for a $500,000 house). For $500,000 and up, it’s $25,000 plus 10% for any amount above $500,000 (for a $750,000 house, it’s $25K plus 10% of $250K, so a total $50,000 down payment) 

Any purchase above $1 million requires a 20% minimum down payment. 

Your lender may require a larger down payment depending on your employment and credit history. This is something you should understand during your pre-approval.  

If you pay less than a 20% down payment, you are required to carry mortgage insurance, which can be factored into your monthly mortgage payment to your lender.  

Hey, remember you paid a deposit…

The deposit gets deducted from your required down payment. For our $750,000 purchase price example, the down payment was $50,000. Assuming you paid a 5% deposit ($37,500), the amount owing for your down payment will be $12,500.

 As always, please reach out if you have any questions or do not fully understand the deposit and down payment requirements. I’m on your team and I’m here to help! Contact me!

Nicole Pauli is an experienced buying agent in the Guelph, Kitchener, Cambridge, and Waterloo areas who aims to find the perfect home for her clients while expertly navigating the curveballs of today’s real estate market.