When buying a house, "deposit" and "down payment" are two terms that are often confused but refer to different parts of the home-buying process. Here's a clear breakdown:
🔑 Down Payment
Definition: The portion of the purchase price that you pay up front from your own funds (not borrowed).
Purpose: Shows the lender you have "skin in the game" and reduces the amount you need to borrow via a mortgage.
Typical Amount: Usually 5%–20% of the home's purchase price, but can be higher or lower depending on the loan program.
Example: On a $400,000 home, a 20% down payment would be $80,000.
💰 Deposit (also called an earnest money deposit)
Definition: A good faith payment made to the seller (or held in escrow) when you make an offer on a home.
Purpose: Shows the seller you’re serious about buying and helps secure the deal.
Typical Amount: Often 1%–3% of the purchase price, depending on the market and agreement.
Refundable?: Usually refundable if the deal falls through for reasons covered in your contract (like financing or inspection issues).
Applied to Down Payment: Yes — the deposit becomes part of your down payment or closing costs at settlement.
🧠 Key Difference:
The down payment is the total amount you’re putting toward the home out of your own pocket.
The deposit is a smaller upfront portion that counts toward the down payment but is made earlier in the process to secure the offer.
🏠 Example Scenario:
Home Price: $500,000
Down Payment: 10% = $50,000
Deposit with Offer: $10,000
At Closing: You’ll pay the remaining $40,000 of your down payment, plus other closing costs.
Let me know if you’d like to see how this plays out in a real-world offer contract or want help calculating amounts based on your situation.