The Life of a Deposit – From Realtor to Closing

Buying a property can be overwhelming. Knowing who does what, where your money goes and all the ins and outs will provide you with some peace of mind when it comes to your deposit. Typically, when purchasing you are required to put a deposit down. This would be handled by your Realtor or directly through your lawyer if you are purchasing privately. Your deposit counts towards your overall down payment & closing costs on the property.

As the buyer, when an Agreement of Purchase and Sale is made, your deposit serves the main purpose of providing security to the seller. This reassures the seller that you are serious about your offer and not as likely to back out of the transaction once things are finalized. 

There is no predetermined amount required by law, however, ‘acceptable’ varies depending on location. Typically your deposit is due within 24 hours of the Agreement of Purchase and Sale being accepted.

“When you are serious about buying, 

it is important to have your deposit funds readily available.”

So you’ve found a property, you have an accepted Agreement of Purchase and Sale, and you are ready to provide your deposit, but where does it go?

Deposit to Realtor

Your deposit will start at the listing brokerage, held in trust. (Not to worry, these accounts are regulated and audited!). 

If you made an offer with a condition of financing and you are unable to secure financing, your deposit would be returned to you in full, without any penalties. **As long as your Agreement of Purchase and Sale does not state otherwise, read everything before signing!

You have now given your deposit, where will it go next?

Deposit to Lawyer

Once all conditions of the sale are met and you are getting everything in order to close your property, your deposit will be transferred and held by your lawyer. 

The deposit is applied to the final purchase price on closing day and becomes part of your down payment (your total down payment amount is determined by you and your mortgage broker). Your lawyer will prepare a statement of adjustments, to let you know how much is owed upon closing OR if no financing was required, your closing costs would come out of the deposit and the difference would be given back to you by your lawyer.

Your lawyer will contact you prior to closing to review and sign all final documentation and you will be shown how your deposit is applied.

Final Thoughts

A deposit is part of your down payment and is made in good faith to show sellers you are a serious buyer. The money is then held in trust (not given to the seller) until the mutually agreed upon closing date. When speaking with your mortgage broker, ensure you provide proof of deposit so they can factor this in and add it to your down payment.

5 Tips to Get Pre-Approved for a Higher Loan Amount

Getting pre-approved is a crucial first step when buying a home. It tells you how much you can spend on a home between your down payment and the approved loan amount. Sometimes, though, the pre-approval amount is lower than what you expect, throwing a wrench in your plans. 

Here are five ways to increase your pre-approval amount if this happens to you.

Lower your Debts

Your debt-to-income ratio measures your outstanding debts to your monthly income. If the percentage of your committed income is too high, you might not qualify for the mortgage amount you want.

Before applying for a mortgage, try paying your high-interest consumer debts down or off if you can. This will likely increase how much you can afford in a mortgage, giving you a higher pre-approval amount.

Increase your Credit Score

Lenders dive deep into your credit score & repayment history when pre-approving you for a loan. Therefore, you might not qualify for as much as you hoped if you don’t have a fair or good credit score.

Before applying for a loan, check your credit and determine where to make changes to increase your score. It is important to bring any late payments current and lowering your outstanding credit card debt to decrease your credit utilization rate.

Change your Mortgage Terms

Sometimes, the mortgage terms make your pre-approval loan amount lower than you’d like. For example, variable rates are currently higher than fixed rates. With the Stress Test, you would currently qualify for less if choosing a variable rate. Work with your Mortgage Broker to see which loan offers the best options for your situation.

Make a Larger Down Payment

If you have more capital saved, consider putting it down on the home. A larger down payment means you need to borrow less from the lender, and they may be able to approve you for a higher purchase price.

If you don’t have the money saved, consider a gifted down payment from family or a government assistance program, such as the First-Time Home Buyer Incentive.

Find a Co-Signer

If you have close friends or family with great credit, consider asking them to co-sign your mortgage. It’s best to ask someone with a high income and low debt who can add to your capability, but use caution. When someone co-signs your loan, they are as financially responsible as you for the payments.

Final Thoughts

Getting pre-approved for a higher amount is possible; it just may take a little work and time. However, before requesting a higher amount, ensure you can afford the higher payment. The more you borrow, the higher your mortgage payment will be. Even if you’re approved for your max amount, it’s a good idea to complete an in-depth budget sheet to ensure you can afford the expenses outside of your new home. 

Think about how much you can afford and if your pre-approval doesn’t match that amount, figure out what you can fix to get the desired amount. It may take a little more time or effort but it is worth it!