I currently have savings in a First Home Saver Account, which I can't draw on until after 1st July, 2013. I will have a 10% deposit & funds to cover additional purchasing costs by March 2013. Is there a way I can buy before I can draw the money? I have read about deposit bonds, don't understand how they work. The bank I have the account with ( ME Bank) doesn't offer them.
Deposit Power will be able to provide short term guarantees pending you meet certain criteria however you cannot pay the bond back after settlement, it needs to be on or before the date. The fee is 1.2% of the deposit amount so say the 10% deposit required is $40,000 then the fee is $480.
Your other option is to have a delayed settlement as well as negotiate a 5% deposit instead of the traditional 10% but that is assuming that you have the 5% after the cooling off period.
Have you signed a contract of sale yet? Do you have finance approval?
ShahinPLCParticipant@plcJoin Date: 2012Post Count: 400
Welcome to the forum.
A deposit bond is basically a substitute for a cash deposit that the vendor receives when contracts are signed. No physical cash actually changes hands, it's basically a document that says you're good for the 10% come settlement time. As it isn't actual cash, the vendor doesn't have to accept it. That's why if you are intending to use a deposit bond, then you should get the approval of the vendor first.
There are a few mobs out there who do deposit bonds, and they charge a fee for them, depending on the time you need it for.
As Shahin mentioned they expire at settlement time, so you would need your finances available by then. Hence nothing stopping you purchasing in March 2013, but you would need a settlement time in July.
Thanks Shahin for your prompt reply & advice!
I haven't applied for finance at this stage, wanted to see what my options are first.
I would like to have everything in place before I sign anything.
I saw the Real Estate agent this afternoon, one property is sold & the other is about to be, so looks like I've missed out on the best two. There is one left that currently is vacant, I am going to enquire if I could rent until settlement.
What type of criteria would I need to meet?
I am self employed ( just lodged tax return), excellent credit rating & stable income.
Would being self employed be problematic to some lenders? ( I've found in the past you are treated like a leper, but if you are full time permanent & earn very little, then getting a loan is not a problem!)
So if I understand correctly, the 10% deposit is expected at signing of contracts & the balance at settlement? ( Sorry for such a basic question)
Kara.Jamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
With short term deposit bonds (less than 6 months to settlement) you generally have to be able to show some form of finance approval (or approval subject to valuation).
If it were a long term bond (longer than 6 months) then you need to be able to show that you have a certain amount of equity in residential property elsewhere.
Your last post is correct – the full balance would be expected at settlement.
JamiePLCParticipant@plcJoin Date: 2012Post Count: 400
Yep, generally 10% is the norm deposit required initially, though you can try to negotiate it lower. Balance is paid at settlement.
As for being self-employed, no reason it needs to be any harder than normal PAYG salary if you have a decent history.
I would say they treat you like a leper – they just want more documentation that a PAYG. It is also dependent on how long you have been self employed? More than 2 years? Between 1-2 years or less than 1 year? Also remember that we are heading towards December so stock will be limited. There is no harm waiting until the end of January where there should be more stock coming onto the market.
Having said that I have a few investors who are putting low offers on properties now and letting the vendor think about the offer over Christmas/New Year.
Either way get your finance sorted as finance usually dictates what your plan of attack will be. Also deposit sounds like a bit of an issue so make sure you negotiate a 5% deposit as opposed to the standard 10%. Since the money doesn't go into the vendor's pocket they generally don't have an issue with you leaving a 5% deposit with the agent rather than a 10% deposit.
What area/state are you looking at?
Have been self employed for just over 1 year.
Currently have $18000 locked into First Home Saver's account
I am contemplating not putting any more into account so it is accessible ( your thoughts?)
Currently saving $2500/ month for deposit
Looking to buy a property around $200,000 – $250,000
Location: Mid north Coast NSW
I have just submitted my Tax return, spoke to a broker a while back & he said I needed the ATO assessment & 10% deposit + extra for purchase expenses to apply for finance.
Thank you all for your input – the advice so far has been very informative.
You have saved a considerable amount saved up already. There is no problem in continuing to put money in the FHOG account but perhaps consider putting some money in a separate account (say $5,000) so that you can cover adhoc payments pre settlement such as building inspection, etc. If you are looking to purchase a property for $250,000 then you will require at least $21,000 in deposit plus building and pest inspection which should be around $500 and legal costs of $1,500 so in total that’s approx $23,000.
In terms of being self employed for over a year this is going to be a problem with the LVR you have. You will need to show the bank at least 2 years full financials.