Deposit & Deposit Financing
Michael Hallett • April 25, 2019
A deposit is a sum of money, which represents a portion of the purchase price, paid as good faith to the seller. Sellers and real estate professionals want buyers to be serious when they make an offer, so they will ask for the deposit. Typically, but there is no rule, deposits are equal to approximately 5% of the purchase price. For example, if the agreed to purchase price was $650,000 then the deposit paid would be $32,500.
In BC most deposits are paid when all subject clauses (financing, inspection, strata documents, etc..) have been removed and it’s now a firm and binding contract.
The deposit amount is made payable to the selling Realtors firm ‘IN TRUST.’ If it’s a private sale where there is no Realtors involved, the deposit will most likely be made payable to the sellers Lawyer’s trust account. Trust accounts are highly regulated and extremely safe.
During the conveyancing process for the purchase, the deposit will show up on the statement of adjustments prepared by the lawyer. It will display the purchase price as well as any debits/credits related to the transaction. The deposit will appear on the statement of adjustments as a credit to the buyer.
The DEPOSIT makes up a portion of the total down payment. The difference is made up by the mortgage financing that will total the purchase price.
Simple math outlining a 20% down payment for a purchase of $500,000.
- Purchase Price: $500,000
- 5% Deposit: $25,000
- 15% Down Payment: $75,000 ($100,000 = 20%)
- 80% Mortgage Financing: $400,000
Common sources of deposits are:
- Cash savings account
- Line of Credit
- Convert investments to cash (TFSAs, RRSPs, Stocks, GICs, mutual funds)
- Gift from an immediate family member (mom, dad, brother or sister)
Deposit Financing is available for someone that has a firm offer with all relevant ‘subjects’ removed on the home for sale. As well, they have received a firm and binding offer to purchase on the new home. Deposit financing allows a person to access the equity for a purchase before the sale completes.
Once all the deposit conditions have been met the deposit lender will the transfer the funds directly to the borrower within 24-36 hours.
Here is an example of the cost to obtain deposit financing.
- Deposit Amount Requested $25,000
- Lender Fee $ 1,250
- Total Loan $26,250
- Term Funds Required (days) 14
- Per Diem Interest $ 8.63
- Interest Paid for Loan Term $ 120.82
- Total Financing Charges $ 1,370.82
- Total Loan and Interest Paid $26,370.82
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One of the most common questions, “how long does it take to get pre-qualified?” My response, “how fast can you provide the information I need.”
Playing in the forest today. Always fun exploring. #mountainbikingmortgagebroker
Mortgage Brokering meets mountain biking and craft beer. A couple months ago I set for a bike ride with the intention of answering few mortgage related questions, mission accomplished. Any good bike ride pairs nicely with a tasty beer which we enjoyed @parksidebrewery. Hope you see the passion I have for brokering, biking and beer. @torcabikes #mountainbikingmortgagebroker
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Spotted a ski-bunny today @kirstinjhallett so I trapped ‘er. 📸 credit @troy.hartley
Aidan leading the pack up the Lemming Line in seek of fine fresh powder.
Beautiful British Columbia! A cold winter day at its finest.
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Happy Holidays. Seasons Greetings. Merry Christmas. All the best from Kirstin, Aidan and Michael. Enjoy your family time.
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My ski buddy getting untracked turns. It was knee to thigh deep all day for him, only shin to knee for me.
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This is a great start to the day!
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Saratoga Beach fire.
Canadian tuxedo.
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Does anybody need or want any firewood? It’s free...you come pick it up.
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If the title of this article caught your attention, chances are your family is growing. Congratulations. If you’re thinking now is the right time to move into a home that better fits your growing family—but you’re unsure how parental leave affects your ability to qualify for a mortgage—you’re in the right place. Here’s the good news. Qualifying for a mortgage while on parental leave is possible when it’s done correctly. When you work with an independent mortgage professional, lenders can often qualify you based on your return-to-work income , as long as you can provide documentation confirming you have guaranteed employment waiting for you. A word of caution If you walk into a bank branch and disclose that you’re currently on parental leave, there’s a chance the bank will only allow you to qualify using your parental leave income. That can significantly reduce your borrowing power. Parental leave income is typically limited to 55% of your previous earnings, up to a weekly maximum. Qualifying on that amount alone can restrict your options and impact the type of home you can purchase. Why lender choice matters One of the biggest advantages of working with an independent mortgage professional is choice . You’re not limited to one lender’s rules or products. Some lenders will allow you to qualify using 100% of your confirmed return-to-work income , which can make a meaningful difference in your approval amount and overall options. What you’ll need to qualify Most lenders will require an employment letter that includes: Employer name (preferably on company letterhead) Your job title Original start date (to confirm probation has been completed) Confirmed return-to-work date Guaranteed salary upon return Lenders want reassurance that your income will resume once parental leave ends. You may also be asked to provide income history from the past couple of years, which is standard for most mortgage applications. One important note Whether or not you actually return to work after parental leave is entirely your decision. From a mortgage perspective, qualification is based on having a confirmed position available to you at the time of approval. If you have questions about qualifying for a mortgage while on parental leave—or anything mortgage-related—please connect anytime. I’d be happy to walk you through your options and help you plan with confidence.
You’ve outgrown your current home. It no longer fits your life, so moving makes sense. And you’re not interested in juggling two properties. Selling first and buying something new feels like the right move. Ideally, you want possession of the new home before leaving the old one. That overlap makes moving easier, reduces stress, and gives you time to paint, renovate, or settle in before the boxes arrive. But there’s a common challenge. What if the down payment for your next home is tied up in the equity of the one you’re selling? That’s where bridge financing comes in. How bridge financing works Bridge financing temporarily unlocks equity from your current home once it has a firm sale . It bridges the gap between selling your existing property and purchasing your next one, allowing you to use that equity toward your down payment. What about competitive markets? In a hot market, a strong offer often means a larger deposit . If you don’t have that cash sitting in your account, but you do have equity, a deposit loan can help you compete with confidence. The non-negotiable requirement To qualify for bridge financing or a deposit loan, your current home must have a firm, unconditional sale . No firm sale = no bridge or deposit loan. Lenders need certainty to calculate available equity and manage risk. Bottom line A firm sale is the key that unlocks bridge financing and deposit loans. If you’re planning a move and want to understand how these options could work for you, let’s talk. I’m always happy to walk you through your options and help you plan your next step with confidence.
