Could a deposit bond be right for you?



Are you thinking about buying a bigger better property? Done the sums and you need to sell your existing property to get enough cash for the deposit.

Before taking their property off the market, most vendors will want a deposit to ensure that you will settle, but what if your funds won’t be available until settlement. This is exactly what happens when people look to buy a new home. So what do you do?

Many people try to negotiate with the vendor to arrange to have the deposit when they sell their home transferred over to the seller.

While this may sound easy but this can be very difficult and most vendors will get very nervous when you can’t leave a deposit.

You can try and increase your existing loan to raise the funds for the deposit.

However waiting for one loan to settle and then to submit another application in the space of a few weeks is enough to send anyone grey.

Given you know you will have the money at settlement, you just don’t have it to hand immediately. In these instances, a Deposit Bond can be the answer instead of the cash.

Think of the Deposit Bond like a loan and a cheque all rolled into one. The Deposit Bond provider will need to verify that you can fund the property’s full purchase price on the settlement date, but on that basis they will issue a cheque to the property vendor for the deposit.

There are some fees associated with the Deposit Bond usually a percentage of the deposit being guaranteed, around five percent is typical. Importantly most bond providers’ assessments do not take into account any expected earnings between the bond’s issue and the settlement. Rather, it assesses the equity value of your assets at the time of application.

Importantly a Deposit Bond is not a form of insurance, but rather if for any reason you cannot go ahead with the settlement, the deposit can be claimed by the vendor.

Keep in mind though that the Deposit Bond value will still be payable by you to the bond provider if the vendor claims on it.

Deposit Bonds can be used for residential, investment and commercial property purchases. Most have an expiry date matching the settlement terms of the property, but they can be up to two years when used for buying property off the plan.

Is the best way for you to pay a vendor’s deposit with a Deposit Bond? Why not speak to Awesome Lending Solutions who can help you work out whether it’s right for you.