Could a deposit bond be your solution to securing a property?
Before taking their property off the market, your vendor wants a deposit to ensure that you will settle, but your funds won’t be available until settlement. What do you do?
Most vendors require property purchasers to pay a deposit ahead of settlement as a commitment to purchase the property. If a purchaser doesn’t have that money to hand immediately, but will at settlement, a deposit bond can be used in lieu of cash.
The bond provider will need to verify that the purchaser has the capacity to fund the property’s full purchase price plus the bond provider’s fees on the settlement date. Fees are usually a percentage of the purchase price, and approximately five per cent is common.
How is this determined?
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 the purchaser’s assets at the time of application.
A deposit bond is not a form of insurance for either the vendor or purchaser. If a purchaser who has used a deposit bond decides for any reason not to go ahead with settlement, the deposit can be claimed by the vendor, and the bond value will still be payable to the bond provider by the purchaser.
How can I use a deposit bond?
Deposit bonds can be used for residential, investment and commercial property purchases, and can be combined with other deposit types, so a deposit could be made up of bond, cash and loan money.
Most providers will issue a bond with an expiry date matching the settlement terms of the property, up to two years, so that a longer bond expiry can be used when purchasing property off the plan.
What happens if a bond goes unused?
Usually, an unused guarantee can be returned to the bond provider for a refund, less administration fees that vary from one provider to another.
If you’re looking for more information about using deposit bonds to secure a property, talk to one of our highly experienced finance brokers here at LKFS. We can help you work out whether a deposit bond is the best way for you to pay a vendor’s deposit or whether another option might suit you better. Call us today on 1300 930 106.