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What can you use to pay your home loan deposit

Buying a home is a coveted dream for almost every Australian. Yet, many Australians find it hard to realise their dream because of hefty home loan deposits.

According to stats, it takes 4.9 years for an average-income couple to save a 20 percent deposit to purchase a house in one of Australia’s capital cities.

 
Ways to put up your home loan deposit.
 


So, what really is this home loan deposit?

In simple terms, a home loan deposit can be defined as your initial contribution towards the purchase price of your home.

Most banks require you to have a 20 percent home loan deposit upfront. In addition, you must also have at least 5 percent of the purchase price saved up to take care of government duties and other accessory costs.

Having a large deposit is beneficial for you. It increases your chances of approval and helps you avoid Lenders Mortgage Insurance (LMI) that could run into thousands of dollars.


When, and to whom, do I pay the deposit?

While your mortgage lender requires you to have a 20 percent home loan deposit, it is not your lender to whom the deposit is paid. The deposit is directly paid to the vendor or their real estate agent, at the time of exchanging contracts or on the auction day to seal the deal.


In what ways can I pay my home loan deposit?

Cash is always the preferred way to put down your home loan deposit. You can conveniently transfer money from your savings account, which is a quick and secure method. Some vendors also accept cheques, but it is not a very common method used by homebuyers in Australia. However, cheques can prove to be handy at an auction when you have to pay a part of the deposit instantly if you succeed.

But what happens if the cash is not available to you at the time of exchanging contracts, which could be several weeks before the settlement date? This could be the case if your money is invested in an instrument that will only mature closer to the settlement date or if you plan to fund the deposit from the sale of another property. In such situations, using a deposit bond can be an alternative to cash.


What is a deposit bond?

A deposit bond is issued by an insurer for up to 10 percent of the property price. It is used as a security to assure the vendor that the cash is coming. Essentially, under a deposit bond, the insurance company undertakes to pay the full deposit amount in case the buyer is unable to complete the transaction.

Note that a deposit bond does not replace a deposit. It is only a guarantee that the deposit will be paid on a future date.


Who can use a deposit bond?

Deposit bonds can be used by anyone – new home buyers, investors, and those looking to purchase a property off-the-plan.

For first home buyers who intend to use FHOG to fund their deposit, a deposit bond offers a quick and efficient alternative to cash until the grant is received. For off-the-plan buyers, a long-term deposit bond can prevent their cash from being tied up for long years until settlement. Deposit bonds are also ideal for investors who have money tied up in various investments but don’t want to miss out on a great real estate opportunity.

For the flexibility and convenience it offers, there is only a one-time fee associated with a deposit bond, which is usually one point something percent of the deposit amount. However, you must seek prior written approval from the vendor or their real estate agent if you wish to use a deposit bond instead of cash.

To issue a deposit bank, contact your bank or a specialist lender. Also, keep the following documents handy:

  • Contract of sale
  • Copy of your home loan approval
  • Evidence of funds and any applicable grants


What if I don’t have adequate deposit?

In case you don’t have adequate funds to put up a 20 percent deposit, don’t worry. It is still possible to get low deposit home loans (by paying LMI) if you have a good credit history and enough income to service your home loan.

Our mortgage brokers can help you get a home loan in your special condition by going through your finances minutely and guiding you to the right home loan product for your situation. Speak to a verified broker to know more.

HashChing is an online mortgage marketplace that enables Australian homebuyers to compare broker pre-negotiated home loan rates online. Besides, aspiring home borrowers can get in touch with our verified broker partners online to have their queries answered by experts in a transparent manner, free of cost. Browse our broker database.

 
By Vidhu Bajaj,
HashChing Content Writer
 

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HashChing is helping Australians by providing access to pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.

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