Hi everyone, long time reader first time asker!
I am looking at purchasing a second investment property. The first time i purchased, i had a small deposit of 5% that was put down upon both parties signing the contracts
Second time round, i am planning on a 100% loan to cover costs, and so i have no deposit. Is it a requirement or expected to pay a deposit upon signing? I know it is common practice, but what are the laws around this? Also will it look worse as part of the offer if there is no deposit, but finance pre-approved?
Thank you!
If the agent or vendor is insisting on a deposit ask them whether a Deposit Bond will be acceptable.
Your mortgage broker should be able to organise this for you.
Richard Taylor | Australia's leading private lender
Not paying a deposit tells the seller : "I don't really have any money"
A smart seller will tell you you can buy it, but in the meantime continue to sell his house to someone else.
The sale process :
You pay the seller a deposit
He pulls it off the market.
If you don't pay a deposit, you cannot expect the seller to pull it off the market either.There are no rules for this situation.
A deposit bond is a good idea or at the very minimum you should try and get $5000 for the deposit. Have you thought about how you are e going to pay the taxes and legal fees?
Cheers Banjo Smyth
In most cases the costs are borrowed and included in the loan amount however the biggest mistake most small investors make is that they listen to their Bank who of course actively encourage them to Cross Collateralise both loans (normally because they now little alternative).
Rachel, whilst you have finance pre-approval make sure that the loan is structured the way in which you want it (separate loan on each property and not 1 property cross supporting another one). if you set it up correctly you should have access to a deposit even if you have not gone to contract on the 2nd IP.
Also another reason for not Xing the 2 properties together is the higher mortgage insurance premium.
Richard Taylor | Australia's leading private lender
The deposit amount is whatever you can negotiate. The agent will try for 10%, and then hit you with a Section 17 (I think it's that) to get an early release of the deposit so they can get their commission.
I have bought a few times using only $1,000 deposit.
Agent wasn't happy, but the Vendor didn't seem to care.
Thanks for everyones feedback, gives me some food for thought.
I'm not exactly sure what a Deposit Bond is, if someone could please explain?
Also our mortgage broker is recommending to move away from the loan our first IP is with (RHG – mortgage choice won't touch them) and combining the loans with a different lender with lower rates, more flexibility etc.
Richard, you mentioned that the higher mortgage insurance premium is one reason to avoid this, are there any others? we thought it would be simpler to have it all under the one banner as such.
A Deposit Bond is a guarantee provided by an Insurance that in the event that you do not settle the Vendor wil receive his deposit (usually 10% of the purchase price). You pay a premium for the Bond and it is held by the Vendor until settlement.
I wouldnt touch RHG either but wonder how he is going to get you a 100% + loan without doing so as RHG will not allow for a
2nd mortgage to be registered behind them.Rachel sorry dont start me on issues of Cross collateralisation and Banks.
Saw a lady yesterday from the forum here who had experienced the issues of just this.
Your MB will explain to you the negatives.
Richard Taylor | Australia's leading private lender
I Have given a $500 deposit on signing contracts and paid the rest as Richard recommends via deposit bond once the amount was finallized after my contract conditions, you need to check if this is ok with vendor/solicitor.
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