A Deposit: Isn’t That The Same Thing As A Down Payment And What Is It For?

What are they for?

To many the difference between a deposit and a down payment in a residential real estate purchase seems confusing. They are both monies you pay up front, right? Not exactly. A deposit is security for performance of the buyer's obligations under the agreement of purchase and sale. The seller may get to keep it if the buyer backs out of the deal and refuses to close.

The down payment is the portion of the purchase price of a home that a buyer pays upfront while the rest of the purchase price is paid by the bank in exchange for a mortgage that needs to be repaid later. If a real estate purchase closes successfully, the deposit is credited towards the purchase price and becomes part of the down payment. So essentially, the deposit is part of the down payment, but they are not the same thing.