Deposit vs. Advance Payment When Buying Property in Hungary: What Buyers Need to Know

When buying property, the amount you pay is only part of the equation. Equally important is when you pay, the legal nature of that payment, and the conditions under which you commit your money.

Agreeing on the purchase price is an important milestone. However, the next stage of the transaction can be just as significant for the buyer: preparing the sale and purchase agreement and making the first payment towards the property.

In Hungary, property transactions commonly involve two concepts: the deposit (foglaló) and the advance payment (előleg).

Although these terms are sometimes used interchangeably in everyday conversation, their legal consequences are fundamentally different.

For example, a 10% deposit on a property priced at HUF 120 million amounts to HUF 12 million. Losing that amount would represent a substantial financial risk for most buyers.

The key question is therefore not simply how much deposit the seller expects, but under what circumstances the buyer could lose that money, and how much control the buyer has over those circumstances.

1. What Is the Difference Between a Deposit and an Advance Payment?

Both a deposit and an advance payment can form part of the purchase price if the transaction is successfully completed.

The difference becomes particularly important when the transaction does not proceed as planned.

Deposit (foglaló)

Under Hungarian law, a deposit serves to reinforce the parties' contractual commitment.

If the contract cannot be performed for reasons attributable to one of the parties, the deposit carries specific legal consequences.

Under the Hungarian Civil Code:

• If the buyer is responsible for the failure of the transaction, the buyer may lose the deposit already paid.
• If the seller is responsible, the seller must generally repay twice the amount of the deposit received.
• If neither party is responsible, or both parties are responsible, the deposit must be returned.

It is important to understand that forfeiting a deposit or repaying twice its amount does not necessarily eliminate other potential consequences of a contractual breach.

Advance payment (előleg)

An advance payment is simply a portion of the purchase price paid before completion.

Unlike a deposit, it does not automatically carry the specific forfeiture or double-repayment consequences associated with a Hungarian foglaló.

If the transaction fails, the advance payment is generally refundable.

However, this does not necessarily mean that the party responsible for the failure has no further liability.

Depending on the contract and applicable law, the other party may still have a claim for damages or other remedies.

The difference is therefore much more than terminology. It directly affects the financial risks assumed by both parties.

2. Is a 10% Deposit Mandatory in Hungary?

No.

Hungarian law does not generally require property buyers to pay a deposit equal to 10% of the purchase price.

Although 10% is a widely used market convention, it is not a legally prescribed amount.

The parties may agree on a lower or higher deposit, or structure the initial payment partly or entirely as an advance payment.

The appropriate amount should reflect the circumstances of the individual transaction.

For example, a straightforward cash purchase with a clear legal background may involve different risks from a transaction dependent on mortgage financing or a government acquisition permit.

Hungarian law also allows courts to reduce an excessively high deposit upon request by the party obliged to pay it. However, buyers should not rely on this possibility as a substitute for negotiating appropriate terms in advance.

The right deposit is not necessarily the amount most commonly used in the market. It is an amount that makes sense in the context of the specific transaction and its risks.

3. What Happens if the Buyer's Mortgage Is Rejected?

This is one of the most important considerations when purchasing property with bank financing.

Imagine that a buyer agrees to purchase an apartment, signs the sale and purchase agreement, and pays the deposit.

The bank subsequently rejects the mortgage application or approves a smaller loan than expected.

Does the buyer automatically receive the deposit back?

Not necessarily.

The answer depends on the contractual provisions, the circumstances of the failed transaction, and the allocation of responsibility between the parties.

The failure to obtain mortgage financing does not automatically guarantee the return of a deposit.

For this reason, the financing arrangements should be addressed before the buyer makes a binding commitment.

Possible contractual solutions include:

• Defining conditions related to mortgage approval.
• Establishing deadlines for submitting and processing the mortgage application.
• Specifying what happens if the bank does not approve the required loan amount.
• Clearly regulating the circumstances under which the deposit must be returned.

These protections do not arise automatically. They must be appropriately negotiated and documented.

4. What if a Foreign Buyer Needs Government Approval?

For some foreign buyers, an additional source of uncertainty is the requirement to obtain official permission to acquire property in Hungary.

Depending on the buyer's nationality and the type of property, a government acquisition permit may be required.

Citizens of the European Union, the European Economic Area and Switzerland are generally subject to different rules, and the precise requirements should always be checked for the individual transaction.

The permit procedure takes time, and its outcome is not entirely within the buyer's control.

Consider the following example.

A foreign buyer wishes to purchase an apartment in Budapest for HUF 128 million.

The seller requests a 10% deposit — HUF 12.8 million — and insists on a fixed completion deadline.

However, the buyer needs government approval before the acquisition can be finalised as planned.

This raises an important question:

Is it reasonable for the buyer to risk HUF 12.8 million because of the timing or outcome of an administrative procedure that the buyer cannot fully control?

In our view, that risk should not automatically be transferred to the buyer.

The sale and purchase agreement should properly address the permit requirement, the relevant deadlines, and the consequences if the necessary approval is delayed or not granted.

This may involve carefully drafted contractual conditions, appropriate timeframes, and clear rules governing the return of funds.

The precise legal structure must be developed by the lawyer handling the transaction.

A buyer's willingness to cooperate should not mean accepting unlimited financial exposure to an administrative process beyond their control.

5. What Is Lawyer's Escrow, and How Can It Protect the Buyer?

In Hungarian property transactions, the parties may agree that the buyer transfers a specified amount into a lawyer's escrow account rather than paying it directly to the seller.

The handling, release, and return of those funds are governed by an escrow agreement.

One important advantage is that the money does not necessarily become immediately available to the seller.

The lawyer holding the funds must act in accordance with the conditions specified in the escrow agreement.

This arrangement may be particularly useful when:

• Government approval is required for the acquisition.
• Certain documents or consents are still outstanding.
• The parties want the release of funds to depend on specified conditions.
• The timing of completion remains uncertain.

However, an important distinction must be made between where the money is held and its legal classification.

Placing money in lawyer's escrow does not automatically guarantee that the buyer will receive it back under all circumstances.

If the escrowed amount is legally classified as a deposit (foglaló), the relevant contractual provisions and Hungarian law determine its consequences.

The escrow agreement should therefore clearly establish when the funds may be released to the seller and under what circumstances they must be returned to the buyer.

6. When Should the Buyer Pay the Deposit?

During a property transaction, buyers may face pressure to transfer money quickly to demonstrate that their intentions are serious.

This is particularly common when several potential buyers are interested in the same property or the seller wants a quick decision.

However, buyers should distinguish between demonstrating genuine purchase intent and accepting substantial financial exposure without appropriate safeguards.

Before paying a deposit, it is advisable to clarify several matters.

The property's legal status. Who owns the property? Are there mortgages, encumbrances, restrictions, or other issues that could affect the transaction?

Financing. Are the necessary funds available, or does the purchase depend partly on mortgage approval?

Payment and completion terms. When must the purchase price be paid, and what conditions must be satisfied?

Handover. When will the buyer actually receive possession of the property?

Outstanding uncertainties. Are there technical, legal, or administrative issues that still need to be resolved?

Addressing these questions does not necessarily delay the transaction.

In many cases, it helps prevent later disputes and makes the completion process more predictable.

7. Why Is Agreeing on the Purchase Price Not Enough?

It is entirely possible for a buyer and seller to agree on the purchase price while remaining far apart on other important contractual terms.

For example:

• The seller requests a substantial deposit.
• The buyer wants the transaction to be conditional on mortgage approval.
• The parties disagree about who should bear the risk of a government permit procedure.
• The seller wants a quick completion, while the buyer needs more time.
• An unresolved technical or legal issue must still be addressed.

These are not necessarily minor details.

For the buyer, they may be more important than a relatively small difference in the agreed purchase price.

At Budapest Buyer's Agent, we therefore do not build our negotiation strategy around price alone.

Our objective is to help establish terms under which the purchase price, completion conditions, and allocation of risks are all acceptable.

8. How Can Independent Buyer Representation Help?

The purpose of buyer representation is not simply to negotiate the lowest possible price.

It is equally important to identify the risks associated with a particular transaction and recognise which terms should be negotiated before the buyer enters into a binding commitment.

At Budapest Buyer's Agent, we approach the purchase offer and the preparation of the sale and purchase agreement as connected stages of the same acquisition process.

Working alongside the lawyer handling the transaction, independent buyer representation can help ensure that:

• The buyer understands the financial obligations being assumed.
• Outstanding legal and technical questions are identified early.
• Negotiations address more than the purchase price.
• Contractual terms appropriately reflect the transaction's risks.
• The buyer can make an informed decision before committing substantial funds.

The drafting and legal review of contractual arrangements remain the responsibility of the lawyer handling the transaction.

Conclusion

The difference between a deposit and an advance payment may initially appear to be a technical legal detail.

In reality, it can have substantial financial consequences.

When buying property in Hungary, agreeing on the purchase price is only one part of reaching a satisfactory agreement.

Buyers should also understand when they become financially committed, which circumstances could put their money at risk, and how those risks are allocated between the parties.

A good property transaction is not only about agreeing on the price. It is also about understanding the risks and establishing appropriate contractual protections.

At Budapest Buyer's Agent, we help our clients navigate these decisions — from selecting the right property and negotiating the terms to completing the acquisition.

We support informed decisions. We do not sell properties.