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What is the Deposit?

In this article, we’ll look at what the deposit is, how much you need to put down, what lenders require, and how to make it easier to be approved.


What is the Deposit, and How Much Do You Need to Put Down?

If you’ve ever rented an apartment, you should be familiar with the idea of a deposit. It’s to show the other party that you’re serious about moving forward by putting “your money where your mouth is.” It provides the other party with some financial security that you intend to follow through as you say you will. You usually provide the landlord with the first and last month’s rent as the deposit when you rent.

When making an offer on a home, a deposit is expected from the home seller, usually within 24 hours of acceptance of the offer, using an e-transfer, wire transfer, certified cheque or bank draft.

The deposit amount depends on the location you’re buying and the property type. If you’re buying in a small town, the deposit might only be $5,000. It could be equal to the down payment. Whereas, if you’re buying in the most expensive markets like Toronto and Vancouver, your deposit maybe $50,000 or $75,000.

What do Lenders Require?

Similar to the down payment, lenders will want to see the bank transaction history for your deposit. The lender will want to see a 90-day transaction history to confirm the source of funds. This is to satisfy Canadian anti-money laundering legislation.

Your lender may also ask to see a copy of the receipt from your real estate brokerage as proof that the funds did indeed go towards your deposit.

Making It Easier to Be Approved

It’s okay for the deposit to come from borrowed funds, as long as they are paid back before closing.

For example, if you’re an existing homeowner and you’re planning to buy a new home first and list your current home later on unless you’ve saved up enough money for the deposit on the new home, it can be tough to come up with the money.

An easy solution to that is to temporarily use borrowed funds. For example, if you have a HELOC or unsecured line of credit, you could use those funds to deposit the new home. The lender will want to see that those funds have been paid back before closing, but as long as you explain everything clearly and provide the necessary documents, there shouldn’t be a problem.

You want to avoid having someone else make a deposit on your behalf that’s not going to be on the mortgage or title. For example, if you’re receiving a gift from your parents towards the down payment of your new home, what you don’t want to happen is for your parents to pay your deposit directly. This is a big no-no with lenders. It’s okay to receive the gifted funds, but you want to pay the deposit yourself from the gifted funds after they have been deposited into your bank account.

The Bottom Line

Do you have any questions about the deposit? Speak to our mortgage experts today. We’d be happy to help.

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