It’s finally time. You have saved every penny 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 made 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.
What is LMI and LVR?
You may have heard of LMI or Lenders Mortgage Insurance. If you think this is some kind of insurance that covers you – this is not the case. LMI is insurance that protects the bank in the event you are unable to pay your mortgage and you default on your home loan.
The LMI premium will depend on how much you borrow and how much of the purchase price you pay from your own funds. The more you contribute the lower the cost of LMI. The way this is calculated is through the LVR – Loan to Value Ratio. The more the owner borrows and the higher the LVR, will increase the LMI premium. The maximum LVR one can be approved for is 95%, including LMI.
It can be a good idea to spend some time researching the basics of the home-buying journey to give you a confidence boost during the process. Experimenting with home loan calculators can help you get an idea on your personal situation regarding stamp duty, your borrowing capacity, and your estimated mortgage repayments as a start, as well as using pre-created guides.
For a guide to some property buying terms, you may not know the meaning of, check out the Home Buying Lingo Glossary.
How much is a house 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.
Deposit
It is fair to expect that a deposit of anything below 5% of the selling price is unlikely to be accepted or allowed by the seller. Even though each financial institution operates differently, it is unlikely home loan providers would lend you more than 95% of the value of the property.
Having a larger deposit with suitable finance terms may assist in strengthening the buyers offer
When do you pay a deposit for a home?
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.
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
IIn 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 finance 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 are deposited as agreed – a receipt needs to be held for the lender. Although it’s the solicitor or conveyancer who will usually handle this, it is good to keep track of the movements.
Can you change your mind after buying a home?
Once you have paid the deposit and submitted the money, life events can throw you a curveball.
The standard form contract of sale in most States and Territories in Australia has a ‘cooling off’ period for private sales where you can change your mind, but how it applies varies depending on which State or Territory you are in, and various conditions do apply to each scenario.
Always discuss your contract of sale with your solicitor or conveyancer to ensure the deposit is paid at the correct time, you understand if there is a cooling off period and how it works, and you are aware of all the risks involved.
Published 09 November 2023
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