Get your ducks in a row: how to make a timely depositBy Dave Fleming : 24 September, 2018
So you’ve finally found the property of your dreams and you can’t stand the thought of someone else moving in? Don’t let a home loan deposit payment oversight get in the way.
One of the most common questions we get asked is when and how to make the deposits on a new property.
And for good reason.
If it’s your first time, you’re probably nervous about locking down that property, so you don’t want a payment mishap getting in the way.
The process varies slightly from state-to-state and in private sales vs auctions, but below we’ll step you through the general process.
Payment one: a holding deposit
You’ve scrimped, you’ve scraped, and you’ve finally saved enough to buy a home. Great! Now you’ve got to work out to who, and when, the deposit is paid.
In private sales, once you’ve made a verbal offer on a property that’s been verbally accepted, the real estate agent may ask you to pay a holding deposit to show you’re committed to your word.
This figure can be between a few hundred dollars to around 1% of the purchase price. It is not an additional cost – it’s simply an advance.
Beware, however, that this holding deposit doesn’t lock down the home. It confirms your intent but another player can still come along and enter the game.
A holding deposit is also not compulsory. So if the seller asks, and you don’t feel inclined, you don’t have to cough up the dough.
If your offer is accepted and contracts are drawn up, the holding deposit is considered part of the full deposit that you’re required to pay.
Be sure to get a written receipt from the real estate agent which states they will refund the money to you if the seller decides to accept another offer – which can, and does, happen.
Private sale deposit
Now it’s time to move onto the full deposit.
In a private sale, once the contracts are signed and exchanged, you generally must pay the seller’s real estate agent a 10% deposit, unless the contract has specified a different amount (which can be around 5%).
The agent then generally keeps the deposit in a trust account until the settlement.
Now, these contracts can take a few days to exchange and sign off, which gives you time to organise how to pay the deposit with the seller’s real estate agent.
During this time, speak with them to arrange a payment method that best suits you both. Options generally include a personal cheque, counter (bank) cheque, electronic funds transfer or deposit bond.
Boom. The hammer comes down and the property’s yours. Well, ok, not just yet.
If you’ve put your hand up for the winning bid, it’s usually expected that you pay a 10% deposit on the day of the auction (once again, it can be as low as 5%).
But hang on, banks are usually closed on the weekends. So how are you going to stump up the cash?
This is where it’s important to plan ahead, and where we can help make sure it all runs smoothly.
Options include writing a personal cheque on the auction day. Or getting a counter cheque from a branch before the weekend auction. Deposit bonds are also an option.
Regardless, it’s always important to check before the auction as to what options are available for paying the deposit.
But what about the deposit on my loan?
The deposit you pay the seller’s agent will count towards your finance application deposit.
For example, say you’ve told the lender you’ll be making a $50,000 home-loan deposit.
Then, when the contracts are exchanged, the seller’s agent only asks for a $25,000 deposit.
The good news is you’ve paid half. The bad news is the lender still requires the remaining $25,000 of the deposit.
So that’s the general timeline for when it comes to paying deposits on a home.
On a related note, it’s very important to ensure your finance has been pre-approved nice and early before the auction.
And as you know, that’s our bread and butter.
We can help you obtain a home loan with a great interest rate, with fees and features that best suit your personal circumstances and budget.
If you’d like to find out more, get in touch with us today.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.