The differences between a bank deposit and a deposit on a property
Of course, you know about deposits – every property buyers’ guide talks about saving one, your mortgage broker or bank has quizzed you at length about how much you have saved up (they even made you fill out those lengthy forms) and your lawyer or the real estate agent have asked how much of a deposit you want to pay …
Professionals are obsessed about deposits, that much is obvious. What is less obvious, however, is that the deposit that your bank and lawyer are talking about is not actually the same thing…
That’s right – there are two different kinds of “deposits” out there and here’s the difference.
The deposit your Mortgage Broker or Bank is talking about…
When your bank or mortgage broker asks about your deposit, what they want to know is
‘How much money do you have to contribute toward the purchase price’.
This is usually discussed as a percentage of the total purchase price (i.e. 10%, 20% or 30% deposit) that you have to pay, with the bank paying the rest through your home loan or as you will probably know it, your mortgage.
Depending on your situation, this deposit can be made up of one or more of the following:
Cash savings (woohoo, go you!)
The equity built up in an existing property
Gifts or loans from family
Withdrawing your Kiwisaver (if you are a first home or second chance buyer - contact your KiwiSaver provider to see if you are eligible to use these funds to buy a property
Homestart Grant – check out the Kainga Ora website here to check if you are eligible
The deposit the Real Estate Agent or your Lawyer are talking about…
When the real estate agent and your lawyer are asking about your deposit, what they want to know is
‘How much money do you want to pay when your offer goes unconditional’
This deposit is usually 10% of the purchase and it is intended sure that you have ‘skin in the game’ and are committed to completing the purchase.
You will pay this deposit into a real estate agent or lawyer’s trust account where it sits for an agreed period of time, usually 10 working days, before being applied toward part-payment of the purchase price.
The most important thing to make sure of with this deposit is that you will have enough money available when your offer goes unconditional – this deposit can be made up of one or more of the following:
Cash savings
Gifts or loans from family
Withdrawing your Kiwisaver – you will need to make sure that you are eligible and apply to withdraw these funds as soon as your offer is accepted!
However, you usually cannot use the equity in another property for this deposit (unless your existing bank is on board). The Homestart Grant is also not available for this deposit as it is only paid out on the settlement date.
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Stay safe and happy hunting!