Deposit Bonds

In the sale of a property, deposits are generally required by vendors upon exchange of sales contracts with the buyer. A deposit gives the Vendor confidence that the Purchaser is committed to the deal and has funds to complete it.

When deposits are required, the purchaser may sometimes not have the funds to hand – they may not have it readily available at the point of exchanging contracts, as their monies are tied up, or they intend to pay with the funds from the sale of their own home. First home buyers often don’t have access to enough funds to cover the deposit.

In these cases, deposit bonds can help guarantee the purchase for the Vendor, enabling both parties to sign the sales contracts.

A Deposit Bond is a short-term guarantee provided to a Vendor by a bank or lending institution. The deposit bond is essentially a promise from the bank, guaranteeing that they will pay the sum of the deposit to the Vendor if the Purchaser defaults and doesn’t complete the purchase. That gives the Vendor peace of mind in the fact that they’ll receive a sum of money to compensate for time and costs incurred if the Purchaser can’t pay.

Deposit Bonds are commonplace and now well accepted in the sale and purchase of property. Although there is no legal requirement for them to do so, Vendors will generally accept deposit bonds instead of cash deposits.

Banks and other lenders will provide a deposit bond for a fee. Exactly how much they charge will depend on your circumstances, and the type of bond you’re seeking.

What Do Lenders Require?

The process of obtaining a deposit bond from a bank or lender is fairly straightforward. Since there is often pressure to complete the sale as soon as possible, Deposit Bond guarantors are often able to process applications quickly if the Purchaser can provide all the necessary documentation. Many lenders offer a 24-hour turnaround.

The requirements tend to depend on the type of deposit bond the purchaser is looking for. Often, Purchasers will be able to get a deposit bond once they have secured their home loan approval. Evidence of the home loan is sufficient because it shows deposit bond guarantors know that the money is on its way. This kind of deposit bond is usually the least expensive and the easiest to get.

It’s also possible to get a deposit bond independent of the Purchaser’s loan approval. In these cases, the deposit bond application process may be somewhat longer – it will resemble the process involved in applying for a loan. Accordingly, this type of deposit bond is more costly to obtain.

Another type of deposit bond is the “low docs” deposit bond. It’s secured against equity in the Purchaser’s current property, and is issued depending on how much home loan is left to be repaid, and how much the Purchaser needs for the deposit.

In short, deposits need not be an obstacle to securing your new property. Your solicitor will be able to give you advice on how to obtain a deposit bond from a reputable lender as easily as possible.