As a Home Buyer, Do I Need to Put Down a Deposit?
Buying a home is exciting, but it can also come with a lot of questions—especially when it comes to money. One question I hear from buyers is:
“Do I need to put down a deposit when I make an offer on a home?”
In Massachusetts, the answer is generally yes. Deposits are a common part of the home-buying process and demonstrate to the seller that you are serious about purchasing the property.
What Is a Deposit?
A deposit is money a buyer puts toward the purchase of a home as part of the transaction. You may also hear it referred to as an earnest money deposit.
The deposit is not normally an additional cost on top of the purchase price. If the transaction closes as planned, the deposit is generally credited toward the amount you owe at closing.
When Do I Pay the Deposit?
In a typical Massachusetts real estate transaction, there may be two deposits.
The first is an initial deposit submitted with or shortly after the offer to purchase. If the offer is accepted, a larger deposit may then be due when the Purchase and Sale Agreement (P&S) is signed.
The amount and timing of the deposits can vary depending on the terms of the offer and the transaction.
How Much Do I Need to Put Down?
There isn't one deposit amount that applies to every home purchase. The amount can depend on the purchase price, local market conditions, the strength of your offer, and what you and the seller negotiate.
In a competitive market, the size and terms of a buyer's deposit may be one factor a seller considers when reviewing multiple offers.
This is one reason it's important to discuss your offer strategy with your real estate agent before deciding how much money to put down.
Is My Deposit the Same as My Down Payment?
No. A deposit and a down payment are not the same thing.
Your deposit is money paid during the transaction to demonstrate your commitment to the purchase.
Your down payment is the portion of the purchase price you are paying rather than financing through your mortgage.
Your deposit is typically credited toward the funds you need to bring to closing rather than being an entirely separate expense.
What Happens to My Deposit?
Deposits are generally held in an escrow account until the transaction is completed or otherwise resolved according to the agreement.
At closing, the deposit is typically applied as a credit toward the purchase.
Can I Get My Deposit Back if the Sale Doesn't Happen?
This is an especially important question.
Whether a buyer is entitled to have a deposit returned depends on why the transaction did not close and the terms and contingencies contained in the buyer's agreements.
For example, an offer may contain financing, inspection, or other contingencies that provide certain protections when their requirements and deadlines are properly followed.
However, buyers should never assume that a deposit will automatically be returned if they decide not to purchase the property.
Before signing an offer or Purchase and Sale Agreement, make sure you understand the deposit requirements, contingencies, deadlines, and circumstances under which your deposit could be at risk. Your real estate attorney can advise you regarding your specific contractual rights and obligations.
Don't Let the Deposit Catch You by Surprise
Before you begin making offers, it's helpful to know how much cash you will need and when you may need to have it available.
Your home-buying budget should take into consideration more than just your down payment. Depending on your transaction, you may also need funds for deposits, inspections, closing costs, prepaid expenses, moving expenses, and other costs associated with purchasing a home.
Thinking about buying a home?
Understanding the process before you make your first offer can make the experience much less stressful. I enjoy helping buyers understand each step so they can make informed and confident real estate decisions.