The Difference Between a Deposit and a Downpayment

When buying a home, two important terms often come up: “deposit” and “downpayment.” While they may seem similar, they serve different purposes in the home-buying process.

Deposit: A Show of Good Faith

A deposit, or “earnest money,” is a small amount (typically around 5% of the purchase price) that the buyer submits with their offer to show intent. If the buyer backs out without a valid reason, the seller may end up keeping the deposit (this usually gets decided between the Buyer and Sellers Legal Representation.  But if it all goes to the completion date (move in/out date) , it’s returned or applied toward the purchase price. 

Downpayment: Building Equity

A downpayment is a larger sum (5-20% or more) paid at closing, separate from the mortgage loan. It reduces how much you need to borrow and impacts your mortgage terms, monthly payments, and equity in the home.

The Differences:

- Timing: Deposit is paid with the offer; downpayment is made at closing.

- Amount: Deposit is smaller (1-5%); downpayment is larger (5-20%).

- Purpose: Deposit protects the seller; downpayment secures your loan

  and builds equity.

Understanding these terms will help ensure a smooth transaction to closing. Contact David  "The Markle Group" for expert advice!