September 19, 2017
Using a Deposit Bond in place of a cash deposit
What is a Deposit Bond?
A Deposit Bond is a guarantee issued as an alternative to putting down a cash deposit when buying a property. It is issued for part or the full amount of the deposit ranging from 1% to 10% of the purchase price.
The Benefits of Using a Deposit Bond
- Simple and quick application and approval process
- Low cost
- One off fee
- No additional charges
- You control who it is written out to (ie you can take to multiple auctions and still be valid)
- Short term (6 months) and long term (up to 48 month) settlement terms can be accepted
- You don’t need to redeem other investments
Situations in Which A Deposit Bond Applies
Selling and Buying at the same time
You have found the new home but your current home is not yet on the market
You don’t have access to the cash deposit to secure the new property as it is tied up in the equity of your existing house
If you time it right you may not even need a bridging loan from a bank
First Home Buyers
You don’t have the full 10% saved up to secure a deposit
Funds to complete the purchase are coming from other sources like family members
You are relying upon (in part) to use the First Home Owners Grant but cannot access the grant funds until settlement
You are using equity in your existing home as security for the new investment property
The Deposit Bond can be used for residential or commercial properties
You don’t need to redeem other investments
New Home & Land Buyers
Secure off the plan allocations without using cash
The deposit bond can secure an unregistered vacant block
Secure a house and land package while you continue to build the deposit ready for settlement
Issues to Look Out For
You will need to be organised. Typically the deposit bond is issued off the back of a loan pre-approval only subject to the property being acceptable. The issuer will need to see a clear cut and defined exit strategy.
Some real estate agent still have reservations about Deposit Bonds. If you want to use a Deposit Bond at either an auction or private treaty you need to gain the approval of the vendor. This means the real estate agent acting for the vendor will need to present your situation for acceptance prior to the auction or at the time of your private offer. If the real estate agent has reservations (ie doesn’t understand what is a deposit bond or prefers cash deposits) then it is unlikely that the vendor will over ride the real estate agent.