Deposit vs Downpayment

Diane Buchanan • November 20, 2018

As part of the mortgage and real estate processes, there’s a lot of confusion around the differences between the deposit and the downpayment. It’s important to understand what sets them apart so you don’t get confused when it’s time to secure financing on a property once you have an accepted offer.

Deposit

A deposit, as it relates to real estate, is money that is included with a purchase contract, as a sign of good faith. It is the “consideration” that helps make up the contract. It’s what is used to bind you to the contract. Typically, when you make an offer to purchase on a property, you would include a certified cheque or a bank draft that gets held by your real estate brokerage while negotiations are being finalized. If your offer is accepted, the deposit is then placed “in trust” where it is held until just before your mortgage closes. The final step is when the deposit is transferred to the lawyer’s trust account and is included as part of your downpayment. 

If you aren’t able to reach an agreement, the deposit is then returned to you. However if you come to an agreement, and then you back out of that agreement, your deposit is forfeited to the seller. Now, although the deposit is separate from the downpayment in that it’s money that goes ahead of the downpayment in the negotiation of the purchase, once everything is finalized, the deposit is then included in and makes up part of the total downpayment. 

The amount you put forward as a deposit when negotiating the terms of a purchase contract is arbitrary, meaning there is no predefined or standard amount. Instead, it’s best to discuss this with your real estate professional as your deposit can be a negotiating factor in and of itself. A larger deposit may give you a better chance at having your offer accepted in a competitive situation. It also puts you on the hook for more if something changes down the line and you aren’t able to complete the purchase. 

Downpayment

The downpayment can be defined as the initial payment made when something is bought on credit. In Canada, as it relates to the purchase of real estate, the minimum downpayment amount is 5%. This means that you have to come up with a minimum of 5% of the total price of the property you are purchasing. The lender will allow you to borrow the remaining 95% of the property value on credit through mortgage financing. 

If you have 20% of the purchase price of the property available for a downpayment, you may qualify for conventional financing, which means you aren’t required to pay for mortgage default insurance through a provider like CMHC. 

Example Scenario

Let’s say that you are looking to purchase a property worth $400k. You’re planning on making a downpayment of 10% or $40k. When you make the initial offer to purchase on the property, you put forward $10k as a deposit which is held by your real estate brokerage. The sellers aren’t comfortable with that amount, and they request you increase the deposit by $5k. You agree to these terms and the contract is finalized, you would then send another $5k to your real estate brokerage trust account making a total deposit of $15k. 

Your deposit is held in trust until such time that it is sent to the lawyer’s trust account where it’s combined with the remaining $25k that you will be using for the downpayment. It’s not rocket science, but as there are a lot of moving parts, and some of the words can be used interchangeably, it’s good to go through it in detail. 

If you have any questions about the deposit, and how it plays into the downpayment, please let me know. And if you have any other mortgage questions or simply want to discuss your personal financial situation, please contact me anytime. I’d love to work with you!

DIANE BUCHANAN
 Mortgage Broker

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How to Get a Mortgage for a Second Property

By Diane Buchanan • April 15, 2026
Thinking About Buying a Second Property? Here’s What to Know Buying a second property is an exciting milestone—but it’s also a big financial decision that deserves thoughtful planning. Whether you're dreaming of a vacation retreat, building a rental portfolio, or looking to support a family member with a place to live, there are plenty of reasons to consider a second home. But before you jump in, it's important to understand the strategy and steps involved. Start with “Why” The best place to begin? Clarify your motivation. Ask yourself: Why do I want to buy a second property? What role will it play in my life or finances? How does this fit into my long-term goals? Whether your focus is lifestyle, income, or legacy planning, knowing your “why” will help you make smarter decisions from the start. Talk to a Mortgage Expert Early Once you’ve nailed down your goals, the next step is to sit down with an independent mortgage professional. Why? Because buying a second property isn't quite the same as buying your first. Even if you’ve qualified before, financing a second home has unique considerations—especially when it comes to down payments, debt ratios, and how lenders assess risk. How Much Do You Need for a Down Payment? Here’s where the purpose of the property really matters: Owner-occupied or family use: You may qualify with as little as 5–10% down, depending on the property and lender. Income property: Expect to put down 20–35%, especially for short-term rentals or if it won’t be occupied by you or a family member. Your down payment amount can be one of the biggest hurdles—but with strategic planning, it’s often manageable. Ways to Fund the Down Payment If you don’t have the full amount in cash, you might be able to tap into your current home’s equity to help fund the purchase. Here are a few ways to do that: ✅ Refinance your existing mortgage to access additional funds ✅ Secure a second mortgage behind your current one ✅ Open a HELOC (Home Equity Line of Credit) ✅ Use a reverse mortgage (in certain age-qualified scenarios) ✅ Take out a new mortgage if your current home is mortgage-free These options depend on your income, credit, home value, and overall financial picture—another reason why having a pro in your corner matters. Second Property Strategy: It’s More Than Just Numbers This purchase should be part of a bigger financial plan—one that balances risk and reward. It’s about: Assessing your full financial health Maximizing your existing assets Minimizing your cost of borrowing Aligning your purchase with your long-term goals Ready to Take the Next Step? There’s no one-size-fits-all answer when it comes to buying a second property. That’s why it helps to talk things through with someone who understands both the big picture and the small details. If you’re ready to explore your options and build a plan to make that second property dream a reality, let’s connect. I’d love to help you take the next step with confidence.

Is Alternative Lending the Right Choice for Your Mortgage Needs?

By Diane Buchanan • April 8, 2026
Alternative Lending in Canada: What It Is and When It Makes Sense Not everyone fits into the traditional lending box—and that’s where alternative mortgage lenders come in. Alternative lending refers to any mortgage solution that falls outside of the typical big bank offerings. These lenders are flexible, creative, and focused on helping Canadians who may not qualify for traditional financing still access the real estate market. Let’s explore when alternative lending might be the right fit for you. 1. You Have Damaged Credit Bad credit doesn’t have to mean your homeownership dreams are over. Many alternative lenders take a big-picture approach . While credit scores matter, they’ll also look at: Stable employment Consistent income Size of your down payment or existing equity If your credit has taken a hit but you can demonstrate strong income and savings—or have a solid explanation for past credit issues— an alternative lender may approve your mortgage when a bank won’t. Pro tip: Use an alternative mortgage as a short-term solution while you rebuild your credit, then refinance into a traditional mortgage with better terms down the line. 2. You're Self-Employed Being your own boss has its perks—but mortgage approval isn’t usually one of them. Traditional lenders require verifiable, consistent income—often two years’ worth. But self-employed Canadians typically write off significant expenses, reducing their declared income. Alternative lenders are more flexible and understanding of self-employed income structures. If your business is profitable and your personal finances are healthy, you may qualify even with lower stated income. Even if interest rates are slightly higher, this option is often worth it—especially when balanced against tax planning and business deductions . 3. You Earn Non-Traditional Income Today’s income sources aren’t always conventional. If you earn through: Airbnb rentals Tips and gratuities Rideshare or delivery apps (like Uber or Uber Eats) Commissions or contracts You might face challenges with traditional lenders. Alternative lenders are often more willing to work with these non-standard income streams , especially if the rest of your mortgage application is strong. Some will consider a shorter income history or evaluate your average earnings in a more flexible way. 4. You Need Expanded Debt-Service Ratios Canada’s mortgage stress test has made it harder for many borrowers to qualify with big banks. Alternative lenders can offer more generous debt-service ratio limits —meaning you might be able to qualify for a larger mortgage or a more suitable home, especially in competitive markets. While traditional GDS/TDS limits typically sit at 35/42 or 39/44 (depending on your credit), some alternative lenders will go higher, especially if: You have a larger down payment Your loan-to-value ratio is lower Your overall financial profile is strong It’s not a free-for-all—but it’s more flexible than bank lending. So, Is Alternative Lending Right for You? Alternative lending is designed to offer solutions when life doesn’t fit the traditional mold . Whether you're rebuilding credit, running your own business, or earning income in new ways, this path could help you get into a home sooner—or keep your current one. And here’s the key: You can only access alternative lenders through the mortgage broker channel . Let’s Explore Your Options Not sure where you fit? That’s okay. Every mortgage story is unique—and I’m here to help you write yours. If you’re curious about alternative mortgage products, want a second opinion, or need help getting approved, let’s talk . I’d be happy to help you explore the best solution for your situation. Reach out anytime. It would be a pleasure to work with you.