Home buying and securing a mortgage involve several transactions. Most of these require the home buyer to transfer funds to the seller's real estate agent, lawyer, or mortgage lender. For a stress-free home-buying experience, it's crucial to understand the requirements of each transaction and budget accordingly. Home buyers often pay a deposit when purchasing a property. This deposit is typically a percentage of the purchase price and shows the buyer's commitment to the sale. Read on to learn everything you should know about the minimum deposit for a house.
What is a House Deposit?
A house deposit, also known as an earnest money deposit or a good faith deposit, is an amount the buyer pays to demonstrate their commitment to purchasing a property. The house deposit is typically a percentage of the purchase price. It is usually paid when the buyer makes an offer to buy a property. Most deposits are made through bank transfers or certified cheques. Depending on the local market, you and your realtor decide the deposit amount. Deposits usually range between one and five percent of the purchase price.
The seller's real estate brokerage or lawyer holds the deposit in trust until the sale closes. If the deal goes through, the deposit will be applied toward the home's purchase price. However, suppose the buyer fails to complete the sale. In that case, the seller may retain the deposit as compensation for the property being off the market.
Is a House Deposit Different from a Down Payment?
Yes, a house deposit and a down payment are two different things. The deposit demonstrates the buyer's commitment to purchasing the property. In most cases, the seller's real estate brokerage or lawyer holds the deposit in trust until the sale closes. Meanwhile, a down payment is an amount the buyer contributes toward the property's purchase price. It is usually paid on the closing date of the sale.
The down payment is a percentage of the purchase price and is paid directly to the seller. The house deposit is typically smaller - around 1% to 5% of the purchase price. Whereas the down payment is usually more, ranging from 5% to 20% of the purchase price. It depends on the type of mortgage and the lender's requirements.
What is the Minimum House Deposit?
There is no set minimum house deposit, as the deposit amount can vary depending on the purchase price of the property and the agreement between the buyer and seller. However, house deposits are a percentage of the purchase price, typically ranging from 1% to 5%. In some cases, a larger deposit may be required, especially in competitive markets with multiple offers on a property.
The amount of the house deposit is negotiable between the buyer and seller. A larger deposit can demonstrate the buyer's commitment to the sale and appeals more to the seller, while a smaller deposit can be more convenient for the buyer to manage.
House deposits: Are they mandatory when buying a home?
You'll usually have to pay quite a few fees and costs when you buy a house. Legal fees and land transfer taxes are some of them, but the house deposit is one of the most common. This is the money you must pay upfront when buying a house. The amount varies depending on several factors, including the house's purchase price and location.
While it might seem like a lot of money, it's important to remember that once ownership has been transferred, this house deposit will be subtracted from the final sale price. That means you don't have to worry about paying a huge amount upfront. In the long run, paying a house deposit saves you money because it limits your exposure to interest charges. Regardless of whether you're buying your first house or your tenth, familiarize yourself with the house deposit requirement and plan an effective strategy for securing your new home.
Contact Mike Bolger
Are you interested in buying a house? Let Mike Bolger help you! As a professional and highly experienced real estate agent Mike has helped numerous clients purchase and sell properties. You can buy your dream home stress-free and hassle-free using his expertise and knowledge. Read our previous blog, “WHAT ARE THE DOCUMENTS NEEDED TO BUY A HOUSE?” so that you are well-prepared to buy your dream home.