Are you looking at buying a property but worried about having the cash handy for a deposit? You could consider a deposit bond.
A deposit bond is a financial agreement that can be used in place of a cash deposit when purchasing a property, guaranteeing to the seller that the buyer will pay the full deposit at a later date.
Deposit bonds are used instead of cash to pay a deposit on a property. If you decide to use a deposit bond, you will pay the purchase price, plus the deposit and stamp duty at settlement.
Here are 10 things you need to know about deposit bonds:
1. Vendor Approval Is Essential
Before lodging your application, it’s crucial that you seek approval from the vendor/real estate agent to use a deposit bond to purchase the property, instead of a cash deposit.
2. Eligibility Requirements Must Be Met
To be eligible for a deposit bond:
- You must have a formal finance approval; or
- You must have at least a pre-approval that’s subject to valuation only; or
- If you’re selling a property and funds from the proceeds of the sale are enough to purchase your new property outright, then you are eligible.
If none of the above applies to you, please talk to one of our specialist mortgage brokers.
3. The Cost Of Deposit Bonds Vary
The cost of a deposit bond depends on the value of the property and the length of time to settlement.
If you were to purchase a home for $500,000 and need a 10% deposit of $50,000. It would cost you around $600 for a deposit bond. If you’d like a rough estimate, contact our specialist mortgage brokers.
4. Deposit Bonds and Bank Guarantees Are Different
A deposit bond and a bank guarantee are similar in that they provide a guarantee to the vendor that the purchaser will pay the deposit at settlement. However, there are some key differences that you should consider before making a decision.
Security – Deposit bonds are unsecured, and bank guarantees are secured.
Although deposit bonds require an eligibility assessment to ensure you have the financial capacity to settle on your purchase, they are unsecured. Whereas bank guarantees are secured and require real estate or cash security to release.
Cost – Deposit bonds have a one-off fee, but bank guarantees have higher set up and ongoing costs.
Time – Deposit bonds are usually faster to obtain than a bank guarantee, as they require less paperwork and have a simple application process.
5. Time Needed For A Deposit Bond When You Have An Off The Plan Purchase
Most of time, when you buy an off the plan purchase a deposit bond is issued up to the ‘sunset clause’ date. A sunset clause date is found in your contract of sale and allows the vendor or purchaser to rescind the contract if the title of the property has not been created by a specific date.
6. First Home Buyers Are Eligible
As a First Home Buyer, you can obtain a deposit bond if you:
- Already have formal approval for your finance through a family guarantor loan, and
- Your property settles within six months.
If settlement is more than six months or you don’t have finance approval, your guarantor will need to apply with you for your deposit bond. You or your guarantor will need to have a property with the equity to release a deposit bond. This is to ensure the guarantor can pay back the deposit bond amount in the unlikely event of a claim on your bond.
7. No Repayments
If you use a deposit bond, you never actually pay back the deposit unless there is a claim. Its purpose is to provide reassurance to the vendor that you have sufficient funds to complete the purchase at settlement. Therefore, at settlement, you will pay the purchase price, plus the deposit and stamp duty.
The only cost involved is the deposit bond fee, which is provided to the lender up front.
8. No Interest Payments
No interest payments are required, besides the one-off deposit bond fee.
9. Deposit Bonds Can Be Issued Within 4-48 Hours
Once the lender has received your signed application with the bond fee payment, your deposit bond can be approved and issued within 4 to 48 hours. Once approved, the bond deposit is released immediately. The Hrkac Group typically have your deposit bond ready in less than one business hour!
10. The Best Way To Obtain A Deposit Bond Is Through A Mortgage Broker
The Hrkac Group make it easy to apply for a deposit bond. Contact our team and we will work with your deposit bond provider on your behalf, so you don’t need to add another thing to your list.
The supporting documents you need will depend on your application type, so we’ll tell you exactly what you need to provide. Then, when the application is ready, we’ll send it to you for electronic signing. It’s as easy as that!
If you have any questions about the topics discussed in this blog, feel free to contact our specialist mortgage brokers, who will provide a personalised and custom service based on your individual circumstances.
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