Deposit vs down payment – these are two terms that are thrown around a lot in real-estate transactions.
Whilst the two terms are often used interchangeably, they actually mean completely different things. This can confuse first time buyers and ultimately impact financial planning and the process of buying a new home.
In this article we explain what is the difference between deposit vs down payment. More specifically we will cover:
- What is a deposit in real estate?
- What is a down payment in real estate?
- How do deposits work in Quebec?
- Deposit vs down payment: Key differences (at a glance)
- Builders deposit vs down payment
What is a deposit in real estate?
In real estate, a deposit is a good-faith payment that you make when your offer to buy a property is accepted. It shows the seller that you’re serious about completing the purchase. It can also make your offer stand out in a multiple-offer scenario.
In most cases, you are not able to get your deposit back unless the sale falls through for valid reasons. This could be the case where your financing isn’t approved or a serious problem is found during the pre-purchase inspection. If you simply change your mind after your offer is accepted, the seller will usually keep your deposit.
Buyer's Tip
What is a down payment in real estate?
Whilst the deposit is a small amount you pay when your offer is accepted, the down payment is the larger amount of your own money that goes towards the total purchase price of the home when the purchase is finalized.
In most cases, the deposit becomes part of your down payment at closing. It is not extra money you lose. For example, if you plan to make a $40,000 down payment and have already paid a $10,000 deposit, you will only need to provide the remaining $30,000 when the sale closes.
How do deposits work in Quebec?
In Quebec, deposits work slightly differently to the rest of Canada. This is because of the Civil Code of Quebec.
The way deposits work are, when you submit a Promise to Purchase to a seller, you indicate in Clause 4.3 if you are including a deposit. If the seller accepts your offer, the deposit should be transferred to a trust account held by the broker or the real estate brokerage representing the transaction.
You should make the deposit subject to the conditions stated in your Promise to Purchase. This will include financing approval, inspection results or review of the property’s legal documents. If one of these conditions is not met and the sale is cancelled for a valid reason, your deposit will be refunded in full from the trust account.
However, since the Promise to Purchase is considered binding, if you withdraw from the transaction without a valid reason, the seller may keep the deposit or pursue legal action for damages. Finally, once the sale is completed, the deposit is normally applied toward the down payment at closing.
Deposit vs down payment: Key differences (at a glance)
There are several differences between deposits and down payments, these are set out in the table below.
| Deposits | Down payment | |
| Purpose | A good-faith payment made when your offer is accepted to show the seller you’re serious about buying and help in negotiations. | The portion of the home’s purchase price that you pay upfront, reducing the amount you need to borrow. |
| Amount | Typically between $5,000–$10,000, or around 1–5% of the home’s price, depending on market conditions. | Usually 5–20% of the home’s purchase price (or more), depending on lender requirements and the home’s value. |
| Timing | Paid when your Promise to Purchase is accepted, before conditions are fulfilled. | Paid at closing, when the deed of sale is signed before the notary. |
| Who holds it | Held in trust by the real estate brokerage, notary or lawyer until the sale closes or is cancelled. | Transferred to the notary or lender at closing to complete the purchase. |
Let’s take a quick look at each of these now.
Purpose of the deposit vs down payment
Although the deposit and down payment are both payments you make toward buying a home, they serve very different purposes.
The deposit is a good-faith payment that helps your offer stand out in a multiple-offer scenario. It shows the seller that you’re serious and financially ready to move forward, which can give you an advantage over other buyers.
The down payment, on the other hand, is your actual investment in the property. It represents your share of ownership and reduces how much you need to borrow from the bank. Once the sale is finalized, your deposit is applied toward your down payment, meaning that your deposit not an extra cost. Rather it is part of the total amount you’re contributing to the purchase.
Buyer’s Tip
Amount of deposit vs down payment
The amount you need for a deposit and a down payment differs significantly.
A deposit is usually a smaller sum, often between $5,000 and $10,000, or roughly 1–5% of the purchase price, depending on the property and how competitive the market is.
A down payment, on the other hand, represents a much larger financial commitment. It typically ranges from 5% to 20% of the home’s price, depending on the property’s purchase price and the lender’s requirements.
These percentages aren’t arbitrary. They are set by federal mortgage insurance regulations and are there to protect both buyers and lenders from taking on too much risk. The idea is simple: the larger your down payment, the less likely you are to default, and the smaller the potential loss for the bank.
The table below shows the minimum down payment requirements for traditional (federally regulated) lenders in Canada.
| Home Price | Minimum Down Payment | Explanation |
| $500,000 or less | 5% of the purchase price | Minimum required for insured mortgages. |
| $500,000 – $999,999 | 5% of the first $500,000 + 10% of the remaining amount | Higher portion applies above $500,000. |
| $1,000,000 or more | 20% of the purchase price | Mortgage insurance not available for homes over $1M. |
If your down payment is less than 20% of the purchase price, then you will also need to pay for mortgage loan insurance. However, making a down payment of more than 20% does not necessarily guarantee that you will be able to get a mortgage. Other determinant factors will include things like your credit history, income stability and if you are self employed or not.
In most transactions, any deposit is credited toward your down payment once the sale is finalized, so is not an additional cost.
Buyer's Tip
Timing of the deposit vs down payment
The deposit is paid early in the buying process, usually within a few days of your Promise to Purchase being accepted. It is then held in trust while conditions like financing and inspection are completed.
Once all the conditions are met and your mortgage is formally approved, your lender prepares to release the mortgage funds to the notary. Around this time, you will also need to transfer your down payment to the notary’s trust account. This is typically done a few days before signing the deed of sale.
On the day of signing, the notary combines your down payment with the lender’s funds to pay the seller. This will officially complete the transaction. At this point the deposit you made earlier is credited toward your total down payment.
Who holds the deposit vs down payment
The deposit is held in a trust account, never by the seller directly.
In Quebec, this is usually managed by the broker or the real estate brokerage handling the transaction. The deposit then remains in trust until the sale either closes or the Promise to Purchase is legally cancelled. This protects both the buyer and the seller by ensuring the money is only released according to the terms of the Promise to Purchase.
If the sale falls through for a valid reason, such as financing is denied, the deposit can be refunded. In this case, both the buyer and the seller must sign a short mutual release form authorizing the broker or brokerage to return the funds to the buyer. Without this written consent, the money cannot be released and will remain in trust until the parties reach an agreement or a court decides the outcome.
The down payment, on the other hand, is held by the notary before the deed of sale is signed. You must transfer your down payment to the notary’s trust account shortly before closing, and your lender will send the mortgage funds there as well. On the day of signing, the notary combines these funds to pay the seller and complete the sale.
In short, the deposit is held early in the process to secure the offer, while the down payment is held at the final stage to complete the purchase.
Builders deposit vs down payment
When buying a new construction home or condo, you will often be asked to make a builder’s deposit instead of a traditional offer deposit.
A builder’s deposit is a series of payments you make directly to the developer or builder during the construction period to secure your unit and show your commitment to the purchase. These payments are often made in stages for example, 5% at signing, another 5% after six months and the remainder when construction milestones are reached. The exact schedule depends on the project and is outlined in your pre-construction purchase agreement.
Unlike a standard resale deposit, a builder’s deposit is usually larger overall and held in a trust account regulated under Quebec’s Guarantee Plan for New Residential Buildings (GCR). This provides protection in case the builder fails to deliver the property.
Once the property is ready and the sale closes, your builder’s deposit is applied toward your down payment, just like a regular deposit. The down payment still represents the total amount you are contributing to the purchase price, while the builder’s deposit is simply how part of that down payment is paid in advance over time.
