What is the Difference Between a Deposit and a Down Payment?

Today’s topic is the difference between a deposit and a down payment in a real estate transaction in Massachusetts. This topic was brought to you by our attorney relationship, Mitchell Weisman from the KWC Law Firm.

First, when you’re running an offer, you’re going to put down a deposit to bind the transaction. There are two deposit points in Massachusetts real estate sales. One is with the offer to bind it, and the second is when you move on to what’s called a Purchase & Sale agreement. The first deposit is typically $1,000 on a single-family home, and the second deposit is typically 5%, in order to be a substantial amount to bind the transaction and make the seller agree to take their home off the market. Of course, these amounts are negotiable, but those amounts are typically customary. Understand that this is the money that you, as the buyer, are risking. You will lose your deposit if you walk away from the transaction for a reason that’s not covered in the contract. That’s why the deposit is called the “at-risk” money.

Now what is the down payment? This is usually the larger amount that the buyer is bringing into the transaction to be applied with their loan, so that when combined, they have the full sale amount that the seller will receive at closing. That’s where the difference is. So, for example, you might be doing a 20% down payment, and then an 80% loan to buy the home. But you wouldn’t necessarily offer 20% with the deposit, because that might be too much to offer up front.

There’s the difference between a deposit and a down payment- hopefully that clarifies it. If you have any more questions, give us a call anytime at 978-494-0346, we’re here to help!