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On behalf of Property Law Firm CB LLP on June 1, 2018.
When you are in the market for a home, you may hear people using the terms deposit and down payment interchangeably. However, to do so is a mistake. These terms are actually distinctly different and play different roles in real estate transactions.
A deposit and a down payment are two distinct financial obligations in a home purchase, and confusing them can cost you money and legal protection. A deposit is “earnest money” you submit with your offer to show the seller you’re serious about the purchase.
It’s held in trust by the seller’s brokerage and applied toward your purchase price at closing. A down payment is the percentage of the home’s purchase price you pay to obtain your mortgage.
Deposits come first and occur when you make a formal offer on a property. It’s an act of good faith. You’re showing the seller your real interest.
If the vendor accepts your offer
The vendor’s realtor will hold your deposit in trust if the purchaser gives your offer the thumbs up, except for cases where both parties agree to other terms. There is protection for your money via an insurance program from the Real Estate Council of Ontario (RECO).
This is when the down payment will come into play. While a deposit secures your offer, your down payment is what you put toward the purchase price to secure financing. First time home buyers in Ontario can have as little as 5 percent down with mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC).
Both purchasers and sellers may benefit from understanding the following prudent information regarding deposits and down payments:
- Deposits aren’t refundable in most instances.
- As a purchaser, you may want to think twice about paying a deposit to the seller directly.
- Deposits can accompany an offer, can be given once a seller accepts an offer or can occur at a time both the seller and purchaser agree upon.
- Down payment amounts can vary according to the purchase price of a property.
- Walking away from a deal could potentially result in a lawsuit from the seller along with the loss of your deposit.
Deposit vs. Down Payment: Side-by-Side Comparison
| Aspect | Deposit | Down Payment |
|---|---|---|
| When it’s required | With your offer, due within 24 hours of acceptance | At closing |
| Purpose | Demonstrates commitment; held in trust | Secures your mortgage financing |
| Who holds it | Seller’s brokerage (trust account) | Applied to purchase price at closing |
| Minimum amount | None mandated; negotiated | 5%–20% depending on price |
| What happens at closing | Applied toward the down payment | Becomes your initial equity in the home |
| Refundable? | Only if conditions in the offer are not met | N/A (it becomes part of purchase price) |
What You Should Know Before Submitting a Deposit?
Deposits are generally non-refundable if you walk away without a valid reason. If your offer includes conditions (such as a home inspection or financing approval), and those conditions are not met, you can withdraw and recover your deposit. However, if you simply change your mind, the seller may keep the deposit.
Avoid paying the deposit directly to the seller. Always submit it to the seller’s brokerage, where it’s held in trust and protected under TRESA regulations.
Start early. If your offer is accepted, you have 24 hours to deliver the deposit. Work with your real estate lawyer to ensure the offer includes protective conditions.
Where to find support
The world of real estate is full of jargon and terms that may be confusing. Fortunately, there are resources available to you as you make your way through this realm either as a purchaser or a seller.
An Ontario lawyer experienced in real estate law can help you gain an understanding of all the intricacies involved, guide you through the process of buying or selling a home, and is equipped to deal with any disputes or issues that may arise.
The Bottom Line
Deposits and down payments are separate financial commitments that occur at different stages of your home purchase. Understanding the difference protects your money and helps you make competitive offers with confidence. A licensed Ontario real estate lawyer can review your offer and explain how both your deposit and down payment work in your specific transaction.
Frequently Asked Questions
1. Can the seller keep my deposit if the deal falls through?
It depends. If your offer includes conditions (inspection, appraisal, financing) and those conditions are not satisfied, you can withdraw and recover your deposit. If you walk away without a valid reason, the seller is not obligated to return it. Your real estate lawyer should review the terms of your offer to clarify your rights.
2. Is my deposit protected if the brokerage fails?
Deposits held by licensed Ontario brokerages are protected under RECO’s regulatory framework and insurance stability fund. Recent regulatory changes, effective October 2026, require all brokerages to file detailed financial information annually, strengthening oversight of deposit protection.
3. How much should I offer as a deposit?
The amount is negotiated between you and the seller. In competitive markets, offering 2–5% of the purchase price as a deposit makes your offer more attractive. Your real estate agent can advise on what’s reasonable in your local market.
4. Will my deposit count toward my down payment?
Yes. Your deposit is applied toward your total down payment at closing. If you submit a $10,000 deposit and your down payment requirement is $50,000, you’ll need to bring an additional $40,000 at closing.
