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Buying a home

Paying a home deposit – what’s involved and when to do it


Troy Ellis is a Mobile lending manager at Suncorp Bank with 10 years’ experience helping customers navigate property purchases and sales.

Troy’s expertise has helped countless customers get the homes of their dreams and set them up financially for life.


The next step

It’s finally time. You have saved every penny over the months to get the money for a deposit. You scrolled and flicked through hundreds of properties to find your new home, and finally, you have found ‘the one’ and make an offer.

What happens now is very much dependent on whether you attend an auction or make an offer through a private sale. Either way, if you have been successful and have had your offer accepted, there is one looming question: Now what?

It’s time to pay the deposit. Here are some commonly asked questions and tips to help get you through the process.

LMI and LVR

You may have heard of LMI or Lenders Mortgage Insurance – you may think this is some kind of insurance that covers you - this is not the case. LMI is insurance that covers the bank in the event the owner defaults on their loan, and is capitalised to the loan.

The premium is calculated on the risk and the purpose of funds and works down to be a percentage of the loan. The way this is calculated is through the LVR – Loan to Value Ratio. The more the owner borrows, the higher the LMI premium. The maximum LVR one can be approved for is 95%, including LMI.

So ultimately, it works in your favour to have a higher deposit as this will result in lower LMI premiums and evidently, lower mortgage repayments down the road.

How much is a deposit

Auction

The nature of an auction is to be competitive and to muscle out the competition, but you must be careful not to over-extend yourself. If you are at an auction where the bidding goes up and up, keep in mind the amount you have saved for the deposit.

Once the selling figure hits a number where you have less than 10% of the sale price, depending on your situation, you may be entering dangerous territory that could be against your interests.

As mentioned previously, factor in the LVR, as anything above 80% LVR, will result in LMI premiums being charged.

Private sale

It is fair to expect that a deposit of anything below 5% of the selling price won’t be accepted or allowed by the seller. Though each financial institution operates differently, as responsible lending standards are tightened, it is fair to say that most banks won’t lend you more than 95% of the value of the property.

If you have been particularly good at saving or had a good weekend at the track, there is no limit on how much you can pay as a deposit. This can be a particularly good way to entice the seller to choose you as the preferred bidder and will also mean your mortgage repayments will be a lot less.

When do you pay the deposit?

Auction

If you have been the successful bidder at an auction, after the crowds disperse and the nerves settle, you will usually go inside and pay the deposit then.

Once the selling figure hits a number where you have less than 10% of the sale price, depending on your situation, you may be entering dangerous territory that could be against your interests.

Prior to the auction, it is a good idea to ask the real estate agent about how the deposit should be paid and what methods they prefer in the event you are successful. If you haven’t had the chance to speak to them prior, most real estate agents will accept a cheque or bank transfer into a trust account.

You may also have an option to pay by a deposit bond, but that must be agreed upon before the auction has started.

Private sale

In the event you have made an offer via a private sale, the deposit due date is open and can be negotiated between you and the seller. The factors that will determine the negotiation will be issues such as how quickly the seller wants to move or whether you have had financial approval for a loan from the bank.

Once you reach an agreement on when and how much to pay, you will need to make sure that funds go into a trust account and a receipt is held for the lender. Though it is the conveyancer that will usually handle this, it is good to keep track of the movements.

Can you change your mind?

Once you have paid the deposit and submitted the money, life events can throw you a curve-ball.

What if you find out your wife is pregnant – with triplets? What if your husband sustains a career-ending injury? When is it too late to back out and change your mind, given the fact you have entered into a contract?

Most states in Australia have a ‘cooling off’ period for private sales where you can change your mind, but it does vary depending on what state you are in and various conditions do apply to each scenario.

State

Cooling off period (private sales)

Queensland

New South Wales

Victoria

Tasmania

South Australia

Western Australia

Northern Territory

Australian Capital Territory

Potential disasters

Auction

If the deposit is not paid by the agreed time you will be in breach of contract. The vendor can rescind the file and take you to court. If you are unsuccessful in defending your case, you may be charged the 10% deposit plus other costs such as costs to reselling the property, court costs and utilities like internet costs.

What could be more damaging than all of that, however, is that if the property is then sold at a lower price than what you initially agreed to, you could be responsible to pay the difference.

Private sale

Before paying a deposit, do you need to consult a solicitor or conveyancer? The answer is no, but it is highly recommended that you do. Make sure you use a professional who comes recommended – in Victoria, for example, almost anyone can open a conveyancing business, so make sure you go through someone who has experience and the qualifications to navigate you through potentially troubling waters.

The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.

Any advice contained in this document has been prepared without taking into account your particular objectives, financial situation or needs. For that reason, before acting on the advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation and needs. Where the advice relates to the acquisition, or possible acquisition, of a particular financial product, you should consider the Product Disclosure Statement before making any decision regarding the product. Contact us for a copy.

Home Loans are issued by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No 229882 Australian Credit Licence 229 882 (“Suncorp Bank”) to approved applicants only. Fees, charges, terms and conditions apply and are available on request.

Various products and services are provided by different entities of the Suncorp Group. The different entities of the Suncorp Group are not responsible for, or liable in respect of, products or services provided by other entities of the Suncorp Group.

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