How to get your deposit when you're in between selling and buying your next home
You have a home on the market for sale, which is getting interest from buyers, and so you start looking around for a new home to purchase. But how do you find the 10% deposit that the agent is asking for to secure your new home?
The good news is you have a few different options.
One option is to have the solicitor/conveyancer for your sale property put a clause in the contract that the buyer of your current home allows their deposit to be released to you before settlement, so that you can use it to place on the new home you are buying. This must be accepted in the contract by the buyer of your property, but it often works.
Another option could be deposit bonds, which are becoming more common these days. A deposit bond is a form of a guarantee accepted by vendors in lieu of a cash deposit. Once you have unconditional finance approval for your new home, you apply for a deposit bond through your mortgage broker. By the time your new home settles, your current home will have already settled, or at least settles at the same time, so you have the funds to pay the full purchase price plus any costs.
Deposit bonds are unsecured, meaning the bond issuer is giving you approval based on your credit worthiness. The bond is short term, and usually based on your unconditional finance approval for the home you are buying.
The cost of a bond varies depending on the amount the bond is securing, and the term the bond is being issued for. You can apply for a bond before you have finance approved however the cost will be higher. The kind of bond you need depends on what you are trying to achieve.
Use the Deposit Bond Finance Approved Fee Calculator from Deposit Bonds Australia to find out what a bond might cost for your circumstances:
https://www.depositbondaustralia.com.au/product-information/fee-calculator/fee-calculator-with-finance/
If you do have the 10% deposit, or even part deposit, but don’t want to access the cash yet, there are a couple of alternatives.
Bank Guarantees
Bank guarantees are like a deposit bond. They are issued by a bank where you have sufficient savings held but you don’t want to release the cash just yet. The bank guarantee is a document stating you have the savings in an account with that bank, but the bank locks the account so that you can’t access the funds while the document is valid.
If your new purchase does not proceed you can cancel the bank guarantee and your cash is once again available for your use. These usually cost a few hundred dollars.
Negotiate to minimise the deposit
Normally real estate agents like to secure the sale of a property with a 10% deposit, however you should know it doesn’t have to be like that. It can be agreed between the seller and buyer to secure with less. Any amount can be agreed upon. Another common amount is 5%.
Real estate agents advise their sellers, understandably, to gain as much deposit as possible so that the buyer is less likely to walk away. If you put $5 down on a purchase and for some reason you don’t proceed, you wouldn’t be as concerned to make the deal happen as you would if you put down $50,000.
The same applies to deposit bonds. You can negotiate the deposit amount down to, say, 5% of the purchase price and request to use a deposit bond as security. This has the effect of lowering the cost of the deposit bond.
So don’t let the idea of coming up with a 10% deposit put you off purchasing a new property before you’ve sold your current one - as you can see, there are other options.
