Vendor supply deposit

[grantc]

Hi All,

Trying to find out how this works.
If say I have a property Im confident can get a bank val on for 300k.
I want to sell to someone who has no (or not enough) deposit, ie. I give them 30k toward deposit (so they get it for 270k). How does the bank view this? will they only value the house at the 270k?

Thanks for your help here!

Grant

 

[tarah]

Hi Grant,

I would think that the property would still be valued at its correct valuation of $300,000. The loan for the property would just be minus the deposit ($270,000). The deposit you either lend or gift to the purchaser will be a separate transaction to the banks.

Hope this makes sense!

Thanks
Tarah

 

[grantc]

Hi tarah,

Thanks for your reply.
Thats all clear but I have heard that banks dont like the vendors supplying the buyers the deposit?
Do you know if thats allowed?
Else I have seen ads around where the vendors loan the deposits to the buyers, typically interest free for maybe 3 years. Is wonder if that is acceptable by banks - where as a 'gift' isnt?

Can anyone clarify pse.

Cheers
Grant

 

[knightm]

They are "allowed" as in perfectly legal and the terms of the loan are to be negotiated between the 2 parties - if someone wanted to lend me enough for deposit with no interest for 3 years I would happily take that! More commonly market interest rates apply (ie somewhere in the 8-10% range roughly) and it may have short terms like 1-5 yrs. Essentially it is a personal loan like any other. The lender (who is also the vendor) may want to register a caviet on the title (a note on title saying that they have some kind of interest in the property and if you sell it you have to pay up etc)

These are more common elsewhere like the USA but can be used here.

The problem that you might face is that the bank may not like it if you are a first time buyer as they want to see genuine savings - once you have a few properties under your belt they dont seem to care where the deposit comes from.

 

[HiEquity]

As long as the bank is aware of the arrangement for the deposit and agree with it it's all hunky dory AFAIK (I'm no expert so do your own DD etc etc). You cross the boundary of illegality if the vendor and / or the purchaser mislead the bank as to the real amount of consideration paid / what the property is really worth. This has been tried before and successfully prosecuted - the bank has to know the true property value actually paid as well as the loan value.

 

[knightm]

Yeah cashback or gift back money deals are definitely a different story. You are effectively committing fraud to a bank if you inflate purchase price above its true value and get a large amount back off the seller as payment or gift.

With vendor financing the deposit the value doesnt change, they just lend you what you would have paid as cash deposit.