Big deposit – any risks?

Hi there, we are planning to put almost 40% deposit on the purchase price on a property. This is for a PPOR which we do not intend to convert to an IP as it is semi rural and I personally don’t think it will have a very good rental yield. Being rather new to the buying process, we are wondering what the risks would be. I would assume the deposit is only payable when the contract goes unconditional. However is there anything that could happen between the contract going unconditional and settlement that could cause us to lose our deposit. Is there a better way to do this to minimise our risks? Is it a good thing to put down such a big deposit anyway?
We would appreciate any thoughts or feedback. Thanks in advance
 
Get an offset account.

Use the minimum deposit possible and get the biggest loan possible.

Set the loan up as interest only.

Park the excess funds in the offset account.

Therefore you will be only charged on the difference between the loan the offset (which is the same position you would have been in - except you now have the ability to draw money if you need it).
 
Hi there, we are planning to put almost 40% deposit on the purchase price on a property...

NOOOOOOOOOOOOOOOO :eek:

Deposit as little as you can. 5k? 10k?

Keep money in your pocket as long as you can. You can earn interest (if money is yours) or save interest payment (if money is borrowed).

Also, you would be disadvantaged less if settlement is messed up for any reason (eg. Natural disaster or fire before settlement).

:)
 
Only pay 10% to the agent now and any additional funds you wish to contribute should be paid at settlement.

Even though I a big believer in paying LMI when you can but in this case I would borrow 80% on interest only and put the rest in offset account as suggested.

good luck
 
Yep, borrow as little as you need to, without having to pay LMI, if it's 80%, 90% 95% whatever. Then setup and offset account and put the rest of your money in there until you convert it into an IP.

There's plenty of info on the forum on offset accounts, if you're not familiar do a search.

Cheers
 
Things can and do go wrong before settlement and it is possible to lose your deposit. Rather than 10% I'd be trying for 5% deposit. Up to you which way you go for the loan, but any balances can be paid at settlement.

Sunshine
 
Thanks all for your replies. We will put 5% down on exchange of contracts, 20% on settlement and the rest in an offset account. We initially thought that having a bigger deposit would get us more bargaining power, but it's definitely not worth the risks involved.
 
At the end of day money is money, doesnt matter where it comes from, only situation where I see that might be different is that you rocked up to the negotiation table telling them you will pay CASH and have suitcases lined up.

Going off a standard contract, even if you gave them 40% deposit, I would have thought that in event you backed out after cooling off, you would only lose 10% therefore you would take back the 30% anyway.
 
We have had to put 40% down on the last one and will have to do same again on the next one, and I have no idea how we're going to scrape that much together considering we still need to pay for a fence, electricity and sewer connections in cash (unless the bank is nice enough to add these to the home loan, in which case our deposit will be huge). Hadn't even occurred to me there was a risk involved with such large deposits ...

But until settlement they only want a few $1000, is that the risk you're talking about? You'd be mad to give the REA 40%.
 
My understanding of the law is that when a person pays more than 10% at the time of signning of the contract, the transaction becomes what is known as a "terms contract" and it is not the best position for a seller to be in. As agents, we would not accept more than 10% knowing it will weaken our sellers position. I have forgotten in intricacies of the terms contract, perhaps you can google it.
 
Forgive me if it comes as a naive question:

The deposit (regardless of how small or large it is) stays with the RE agency Trust account- doesnt it? I mean the seller doesnt get it until settlement?

Then why does the seller bother with how large the deposit is anyways? Some security since buyers might not wanna back out of a deal if they put in too much.....
 
As a seller, if someone flashed $50k as an initial deposit I'd think they are more serious than the one who was putting down $500, regardless of the finance clause saying both of them were coughing up a $50k deposit to the bank.
 
Thanks all for your replies. We will put 5% down on exchange of contracts, 20% on settlement and the rest in an offset account. We initially thought that having a bigger deposit would get us more bargaining power, but it's definitely not worth the risks involved.

Vampii,


Somehow this doesn't read right. At what stage are you at with the negotiations ??


If you are still in the argy-bargy stage, and you stated it's going to be your PPoR not an IP, then I see nothing wrong with placing 10% down on exchange, and then immediately instructing your solicitor to place a caveat on the title deed to protect your interests.


At settlement, you will be required to pay the other 90% of the funds to settle the contract.


You stated you might pay another 20% at settlement ?? This makes no sense to me. Either I'm completely mis-understanding what you are saying / asking, or you have no idea what settlement means.


In my opinion, offering a large deposit would put you in a fantastic position to bargain hard with the Seller. At least they'll have some confidence that the contract might proceed, as you'll only be seeking a 60% max loan, which most financiers seem comfortable extending nowadays....even rural.
 
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