Confused about 100% Home Loans + 10% Deposits

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From: Lan Diep


Hi All

Recently I made my first offer for an IP :)
Nice little brick house in my local area for $145k....Thought I'd start small.

However when I signed the letter of Offer at the Real Estate office, the agent asked me that a 10% deposit was required for the property within 5 days from the date of Vendor acceptance. Because I am using Equity in my current home, I am borrowing 100% from the bank.

The issue with this is when the bank provides me with the 100% Home Loan - this includes my 10% on the property. So, how does the bank calculate the interest on the loan?

1) Time of my deposit?
2) Time of settlement?

I can't seem to understand how if they lend me the money at the time of settlement , will they not charge me any interest for the time between the deposit and the settlement? Or will they charge at two different rates?

Thanks in advance for any expertise.

Lan
 
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Confused about 100% Home Loans 10% Deposits

Reply: 1
From: Andrew S


My understanding is that they will commence charging interest once you draw on the loan, but that the interest will only be based on the initial 10% until you draw on the remaining amount.

See what others think.

Andrew
 
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Confused about 100% Home Loans 10% Deposits

Reply: 2
From: Wadih Nakhle


Hi Lan,

Why don't you see if the vendor will accept a Deposit bond in place of a "cash" deposit.

The DB won't cost much to purchase, and it will mean that you can obtain your 100% finance at settlement in one transaction.

Wadih.
 
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Confused about 100% Home Loans 10% Deposits

Reply: 2.1
From: Mojo Jojo


The major Banks will issue you with what's called a "Bank Guarantee". Very similar to a deposit bond but I found them to be a bit cheaper as they use your current equity as the security.

A $29000 bank guarantee cost $100 establishment fee + $300 per 6 months
 
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Confused about 100% Home Loans 10% Deposits

Reply: 2.1.1
From: Lan Diep


So will the cost of the bank guarantee be lower than if I let the bank charge me interest on the 10% for one/three months until I receive the outstanding 90%??
 
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Confused about 100% Home Loans 10% Deposits

Reply: 2.1.1.1
From: Jakk Bass - The SLUM LORD


Hi Lan,

There seems to be this strange misconception that the deposit required is 5 - 10% of the purchase price.
This is not so, the amount of the deposit can vary and is up to negotiation between the parties concerned.
Real Estate Agents will always try to get 10% as this will cover their commission and advertising expenses and they wont have to chase up the money after the settlement has taken place.
If they are holding 10% deposit, they just take out their commission and advertising expenses and then account sales to the Vendors Solicitor at (or sometimes before) settlement.
I recently (last month) purchased a property for $115,000 and the full deposit was only $1,000.

regards
Jakk
 
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Reply: 3
From: Terry Avery


Lan,

You have to front up the 10% deposit in cash or a deposit bond. The bank
then lends you 100%. At settlement they pay the vendor the balance he is
owed 90% and the balance of the loan is deposited into your nominated
account and so you get your deposit back that way.

The bank lends you the money from the day of settlement and calculates the
interest on the money they lent you which is 100%. If you don't have the 10%
deposit in cash then you need to negotiate with the vendor to accept a lower
deposit. !0% is a real estate agent's convention, not a law. It makes them
happy because if you default they get to keep the deposit monies.

Hope this makes it clearer.

Cheers
 
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Re: Confused about 100% Home Loans 10% Deposits

Reply: 1.1
From: Terry Avery


I didn't think the banks would advance you the deposit from the loan. After
all if they give you 10% for the deposit they have no security if the deal
falls through if you default. They generally advance the monies at
settlement when they can take a caveat over the title of the property you
are buying. But then if you are using the equity in your own home I guess
they can secure the deposit against that. In that case they would charge
interest on the deposit until settlement and then interest on the total loan
from then on.
 
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Confused about 100% Home Loans 10% Deposits

Reply: 2.1.1.1.1
From: Dale Gatherum-Goss


Hi

Great posting!

I never offer to pay 10% deposit. I bought my last 2 properties with $500 as the deposit with the balance payable on settlement.

Why should you allow a real estate agent to use your money to pay his commission?

I believe that we all must play this game by our own rules. That is, how will I do business and on what terms. If I'm buying, I play by my rules - or not at all!!

Dale
 
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Re: Confused about 100% Home Loans 10% Deposits

Reply: 2.1.1.2
From: Terry Avery


Work it out...

$10,000 x (6.5% / 12) = $54.17 in interest per month (interest only).
 
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