When you’re a first home buyer, it’s only natural to have many questions about the home-buying process. Before you can even call a property your own, it’s time to take on the actual ins and outs of paying your deposit and taking over legal ownership of the property.
For many home buyers, this means a major question: how do I pay the deposit for my home loan?
How do I prepare to buy a property?
Buying a property is no impulse decision, so much of the set-up for paying your deposit starts before the sale.
To set yourself up well for auction day or private sale, you’ll want to ensure you have the money ready to pay your deposit (usually between 5% to 20% of the property value).
You’ll also want pre-approval from a lender to ensure that the loan for your new home won’t be rejected if you’re the highest bidder.
Pre-auction day, you’ll also want to have been in contact with a solicitor or conveyancer to assist in the legal aspects of your purchase.
You’ll want also to have reviewed the key documents regarding the property to get a realistic understanding of its valuation - things like the pest inspection and building inspection.
OwnHome Deposit Boost Loan
As a Deposit Boost Loan customer, you don’t need to worry about paying your deposit on auction or sale day.
For 2% (+GST) upfront, we will provide a full 20% deposit, allowing you to access a traditional 80% LVR mortgage.
Check out our upfront costs calculator to see how OwnHome stacks up against other home loan solutions.
On the big day, our OwnHome Buyer’s Agent will ensure you get the right home at the right price and secure the property with your OwnHome Deposit Boost Loan.
How do I pay my deposit for a private sale?
If you are buying your property via private sale, the payment process looks a little different. This process is also sometimes known as sale via private treaty.
Once the vendor has accepted your offer, you’ll receive a contract of sale for the property. You and the vendor will sign and exchange copies of the contract so you each have a fully signed copy of the contract.
You’ll then generally need to pay a deposit to the selling agent (the vendor’s real estate agent), which can be done via any payment method that they specify. This may be:
- Electronic funds transfer
- Personal cheque
- Counter cheque
- Deposit bond
This money will generally be held in a trust account until settlement but can be released early if there is a mutual agreement.
There may be a cooling-off period written into the contract. This differs in time between states but is usually several business days. During this time, you will have the chance to withdraw from the contract.
- In NSW, ACT, and Queensland, the cooling-off period is five business days from the exchange of contracts, ending at 5 pm on the fifth day.
- In the NT, the cooling-off period is four business days from the contract date.
- In Victoria, the cooling-off period is three business days from the contract date.
- In SA, the cooling-off period is two business days from the contract date.
- In WA and Tasmania, there is no mandatory cooling-off period unless specified in the contract.
Once the cooling-off period has passed, you’ll have some time before the settlement date to organise other important things: finalising your home loan and arranging home insurance, for example.
How do I pay my deposit at auction?
Things work a little differently when you’re the successful bidder at a property auction.
When you’re purchasing a property at auction, you’ll potentially have other people’s bids to worry about, along with the reserve price for the property.
You’ll be competing for the highest bid while also staying within an amount appropriate to your financial situation (where you have 10-20% of the deposit). You’ll also have to clear the reserve price, usually not advertised, which is essentially the minimum price a vendor will accept for a property. If a property does not meet the reserve price, it will not sell.
If you land with the winning bid, it will be time to sign the contract of sale and pay the deposit. You’ll want to have a backup payment method planned, just in case. Payment methods can include:
- Electronic funds transfer (EFT)
- Bank cheque
- Cash
Here, you’ll pay the initial deposit that you have saved (usually up to 20% of the property price). The remainder of the payment — either comprising of your home loan or personal money — will be due at the settlement date.
There is no cooling-off period with auctions in Australia.
What do I have to pay at settlement, and how do I do it?
Settlement is usually roughly six weeks after the exchange of contracts, during which time you will finalise your home loan and prepare for the other upfront costs of home buying. These include:
- Stamp duty (use our stamp duty calculator to work out what this must cost for you)
- Legal costs
- Conveyancing fees
- Lender’s mortgage insurance (LMI), if applicable
These are not included in the sale price of a property but are all mandatory expenses unless other waivers apply.
How should I pay my home deposit?
While you may be able to choose between paying your deposit via EFT, cheque, or even cold hard cash, there are reasons you may choose one over the other.
- Personal cheque — Feeling traditional? A personal cheque will be cashed against your bank account, so you will need to make sure the money is in the account. You’ll also need a chequebook, which can usually be requested from your bank free of charge. Many people like the freedom to write up a cheque on the spot, changing it for the specific amount of money needed.
- Bank cheque — Unlike a personal cheque, the funds do not necessarily need to be in your account when this is cashed. However, since a bank cheque (also called a counter cheque) needs to be for a specific amount of money, this must be prepared in advance. You may also need to pay to have this drafted up at certain banks (usually around $10), while others will provide it free of charge to account holders. Make note: auction day tends to happen when banks are closed, so you’ll need to be ready before the day.
- Electronic funds transfer — An electronic funds transfer, or EFT, is an all-encompassing term for a digital money transfer. Whether this is a bank transfer or a BPAY transaction, you must be aware of any daily transfer limits that apply to your bank account. You may be able to have these temporarily adjusted with your bank.
- Deposit bond — A deposit bond, or deposit guarantee, is a legally binding document that declares you will pay the deposit on settlement. This does give you time to prepare your finances more adequately but will require legal or banker assistance in drafting up the document. Not all real estate agents or vendors will accept deposit bonds.
- Cash — Make sure to check in advance if the vendor will accept this form of payment, as many selling agents won’t want to accept large volumes of cash.
What next?
You’ve purchased your new home (by private sale or as the winning bid at auction day) and made it past settlement day with no major difficulties. Now it’s down to you to keep up with your monthly repayments and continue on your journey to complete home ownership
