A deposit is a sum of money, which represents a portion of the purchase price, paid as good faith to the seller. Sellers and real estate professionals want buyers to be serious when they make an offer, so they will ask for the deposit. Typically, but there is no rule, deposits are equal to approximately 5% of the purchase price. For example, if the agreed to purchase price was $650,000 then the deposit paid would be $32,500.

In BC most deposits are paid when all subject clauses (financing, inspection, strata documents, etc..) have been removed and it’s now a firm and binding contract.

The deposit amount is made payable to the selling Realtors firm ‘IN TRUST.’ If it’s a private sale where there is no Realtors involved, the deposit will most likely be made payable to the sellers Lawyer’s trust account. Trust accounts are highly regulated and extremely safe.

During the conveyancing process for the purchase, the deposit will show up on the statement of adjustments prepared by the lawyer. It will display the purchase price as well as any debits/credits related to the transaction. The deposit will appear on the statement of adjustments as a credit to the buyer.

The DEPOSIT makes up a portion of the total down payment. The difference is made up by the mortgage financing that will total the purchase price.

Simple math outlining a 20% down payment for a purchase of $500,000.

Purchase Price:                              $500,000
5% Deposit:                                      $25,000
15% Down Payment:                  $75,000 ($100,000 = 20%)
80% Mortgage Financing:       $400,000

Common sources of deposits are:

  • Cash savings account
  • Line of Credit
  • Convert investments to cash (TFSAs, RRSPs, Stocks, GICs, mutual funds)
  • Gift from an immediate family member (mom, dad, brother or sister)

Deposit Financing is available for someone that has a firm offer with all relevant ‘subjects’ removed on the home for sale. As well, they have received a firm and binding offer to purchase on the new home. Deposit financing allows a person to access the equity for a purchase before the sale completes.

Once all the deposit conditions have been met the deposit lender will the transfer the funds directly to the borrower within 24-36 hours.

Here is an example of the cost to obtain deposit financing.

 

Deposit Amount Requested

$25,000

Lender Fee

$1,250

Total Loan

$26,250

Term Funds Required (days)

14

Per Diem Interest

$8.63

Interest Paid for Loan Term

$120.82

Total Financing Charges

$1,370.82

Total Loan and Interest Paid

$26,370.82