Real Estate

Question about Deposit to builder to hold a new house

  • Last Updated:
  • Dec 16th, 2019 2:54 pm
[OP]
Newbie
Aug 17, 2019
33 posts
3 upvotes

Question about Deposit to builder to hold a new house

Hi guys,

A newbie question in this matter for me. So bear with me if it is too basic.

So suppose I am interested in buying a new house from a builder. So I go to the builder and the builder ask 50K deposit to hold the new house for 5 business days while I get approval for mortgage. Assume the house price is 1.2 millions and I have already sold my existing house and have 800K available so I need a mortgage of 400K.

My question is what will happen to the 50K deposit.

Will they be subtracted from mortgage so I actually need to qualify for 350K mortgage instead of 400K?
Or the builder will return me the 50K deposit?
I still need to pay for Land Transfer Tax which might be around 28K so can I use that 50K deposit to pay for Land Transfer Tax?
I am assuming that if I dont get approved for mortgage then builder will return 50K; correct?

TIA
2 replies
Newbie
Nov 15, 2019
70 posts
27 upvotes
Hi,

The builder usually holds the deposit and on the final closing, the deposit amount goes towards the purchase price (i.e. 50k subtracted from 1.2 mil purchase price, so 1.15 mil owed on final closing).

Therefore, the mortgage amount you require would be the purchase price minus any deposits that have been paid to the builder.

A deposit almost always applies to the final purchase price (as explained above), so you would need to come up with extra cash to pay land transfer tax, and any other closing costs such as legal fees, etc.

If your offer on the house is conditional, then the deposit should be refunded, provided that you opt out of the deal before the 5-business day period expires.
Deal Fanatic
User avatar
Feb 2, 2014
8575 posts
2449 upvotes
Toronto
rh1974 wrote: Hi guys,

A newbie question in this matter for me. So bear with me if it is too basic.

So suppose I am interested in buying a new house from a builder. So I go to the builder and the builder ask 50K deposit to hold the new house for 5 business days while I get approval for mortgage. Assume the house price is 1.2 millions and I have already sold my existing house and have 800K available so I need a mortgage of 400K.

My question is what will happen to the 50K deposit.

Will they be subtracted from mortgage so I actually need to qualify for 350K mortgage instead of 400K?
Or the builder will return me the 50K deposit?
I still need to pay for Land Transfer Tax which might be around 28K so can I use that 50K deposit to pay for Land Transfer Tax?
I am assuming that if I dont get approved for mortgage then builder will return 50K; correct?

TIA
At the end of the day, the lawyer does all the number crunching. He will provide you with a statement of adjustments that shows the purchase price and closing costs (the gross amount owing). He will then account for the mortgage proceeds and all deposits to determine how much is net owing.

If the agreement is conditional upon financing, then yes, you get it back. Just be wary of the agreement.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative

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