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What Is a Deposit?

A deposit (also known as a down payment) is a sum of money paid by the buyer to show their commitment in the purchase. It is generally held by the seller’s solicitor or estate agent and released to the seller on completion of the sale.

How Is It Used in Real Estate?

The term deposit is commonly used before the home buying process begins. This is because a deposit needs to be available before a property is purchased. For most, this is a significant amount of money that may take years to save up.

It’s expected that every home buying and selling process will require a deposit; It’s almost impossible to buy a home in Metro Vancouver without some sort of monetary deposit on the property.

The mortgage company or lender will also want to know the details about the deposit so they can factor that into their lending equations and determine how much you’re eligible for.

During the deal, when paperwork and offers are being drawn up, the actual details of the deposit become more visible and this term will be commonly used.

Overall, there are a lot of areas where this term is used, from before the home buying process begins through to the final details.

Example

Luis has been seeing intriguing headlines about what is happening in the real estate market. He asks his friend, Naomi, who has been planning on buying a home for several years, if she is actually going to buy.

Naomi responds, Of course! I’ve been saving up my deposit for my dream home for years. The deposit is the money needed to show commitment and move forward with the home buying process. Otherwise, the seller or lender may not take me seriously.

I’m shocked that you even need a deposit to buy a house, Luis replies.

Naomi continues to explain the importance of the deposit, how it factors into the mortgage, the deal influence and risk, and more that Luis previously didn’t know about.

Frequently Asked Questions

How much do you need for a deposit in Metro Vancouver?

It’s typical for a deposit to be around 5% to 20% of the home’s value. So, if you’re buying a $789,000 condo in Richmond, BC, the deposit can range from $39,450 to $157,800. There can be many benefits from putting a smaller or larger down payment on a house. We recommend talking to your financial advisor or mortgage broker about what is best for you.

How do you calculate the minimum down payment for a home?

If the purchase price of your home is $500,000 or less

Suppose the purchase price of your home is $400,000. You need a minimum down payment of 5% of the purchase price. The purchase price multiplied by 5% is equal to $20,000.

If the purchase price of your home is more than $500,000

Suppose the purchase price of your home is $600,000. You can calculate your minimum down payment by adding 2 amounts. The first amount is 5% of the first $500,000, which is equal to $25,000. The second amount is 10% of the remaining balance of $100,000, which is equal to $10,000. Add both amounts together which gives you total of $35,000.

(Source: Government of Canada)

More reading

Guidelines from BCFSA on Deposits