Don’t miss out on a smart investment opportunity because your cash is tied up! Learn about deposit guarantees…..
What is a deposit guarantee?
A deposit guarantee or deposit bond is a guarantee to a vendor, by an insurance company, that the vendor will receive their 10% deposit even if you default on the contract of sale.
The insurance company is guaranteeing that you DO have and WILL have the 10% deposit at settlement.
Deposit Guarantees can often simplify the process of buying a property. For purchasers it provides a quick and convenient way of accessing a deposit without having to arrange bridging finance, realising investments or releasing equity from existing property.
Deposit Guarantees are available to approved applicants for short periods up to six months or for longer periods up to 48 months. Part cash / part deposit guarantee is also an option if cash is not available to cover the full deposit.
How do deposit guarantees work can I have an example please?
For example, on a $500,000 real estate purchase, a 10% deposit of $50,000 is usually required, so instead of you (the buyer) paying $50,000 deposit upfront in cash (if you don’t have it available) and the remaining $450,000 at settlement:
- You pay an upfront fee to secure a deposit guarantee from an insurance company to the value of $50,000. Deposit guarantees can usually be issued in a matter of hours once the required documentation is received.
- The vendor holds this deposit guarantee as your property deposit.
- At settlement date, you pay the full purchase price of $500,000 as there has been no upfront cash deposit.
- If you fail to settle, the vendor hands the deposit guarantee to the insurer, the insurer pays the vendor the $50,000 and the insurer then pursues you for the $50,000.
Note: a deposit guarantee is not a way out of paying a deposit. If you fail to settle on a contract of sale you will forfeit the cash deposit or be required to pay the deposit amount.
Who can use deposit guarantees?
Deposit guarantees may be suitable for individuals and others including:
- first home buyers
- super funds
- trusts
- partnerships
- companies, and
- builders and developers
buying established or ‘off the plan’ residential or commercial real estate. They can also be used to purchase vacant land.
Next steps?
Whether you are a first property buyer or a single or multiple property owner, contact us to arrange a chat to find out if deposit guarantees may be suitable for you.
For further reading on Deposit Guarantees please read our article – Can you pay a property deposit with no cash outlay?