All You Need to Know About Deposits

 

 

Deposit

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The word deposit can cause a little confusion when it comes to buying a home, particularly if it’s your first home.  You’ll talk about deposits with the bank and you’ll also be asked for a deposit by the Real Estate agent. 

So, the word deposit comes up twice when buying a home, but are they the same thing? Let us explain.

  • A deposit is what a bank requires you to contribute when purchasing your first home.  This can be a minimum of 5% the purchase price.
  • A deposit can also be required when you purchase a property.  It will be requested once you confirm on the property i.e. your offer has been accepted and all conditions within the Sale & Purchase agreement have been satisfied.  This deposit is usually between 5-10% of the purchase price.

This leads us to a very common questions we are asked ‘Why are there two deposits?’  

Let’s use an example to explain this. 

You purchase a property for $400,000 and have a 10% deposit of $40,000.  The $40,000 is what you have advised the bank that you will to contribute towards purchasing your home.  You will borrow the balance of $360,000 from them.

 

Purchase Price =  Your Contribution + Bank Loan

 

When you purchase the property the real estate agent also asks you to contribute a 10% deposit ($40,000) towards the home with the balance ($360,000) to be paid on settlement.  

You don't need to come up with the $40,000 twice. 

This is because the $40,000 you have advised is your contribution (your deposit), can be used to pay the deposit to the real estate agent.  As long as you have confirmation that this deposit has been paid it is acceptable to the bank.

The remaining outstanding amount $360,000 will be made available by the bank on settlement day and be used to pay the balance of the purchase price of the property.

 

What if your deposit and the deposit required by the real estate agent are different?

Sometimes these deposits amounts will vary. Perhaps 10% is required for the bank and only 5% required for the real estate agent.   In this case only $20,000 is payable to the real estate agent with the balance to be forwarded on settlement day.

 

Our top deposit tip

Avoid any situation where you only have a 10% deposit and the real estate agent asks for a 15% deposit on the property you are looking to purchase.  You won’t have enough funds available to pay the real estate agents deposit.  So rule of thumb, make sure the deposit you have for the bank is always the same or higher than the deposit you are required to pay to the real estate agent.  And remember the deposit to the real estate agent is negotiable.

  • First Home Buyer