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Deposit Bonds - Help!

  • Thread starter Thread starter Astro_
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Astro_

Norm Smith Medallist
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Hi lads,

I'm looking to purchase a property off the plan and are required to drop a 10% deposit today.

Currently I have only $10,000 in cash, however the 10% deposit is $50,000.

Completion of the property is due to complete in May 2014 and by that time I should have saved around $130,000.

Anyway the issue is the 10% is required today (should I proceed).

Does any one know if I would be approved for a Deposit Bond (for $50K) if all I have is $10,000 cash today and no other equity?
 
You would be struggling Astro.

Generally with long term deposit bonds (greater than 6 months), you would need to show equity in other property.

Also as deposit bonds are basically a piece of paper stating you're good for the cash come settlement time and not actual physical cash, vendors might not accept them. You would first have to ascertain whether it would be accepted.
 
Visions said:
You would be struggling Astro.

Generally with long term deposit bonds (greater than 6 months), you would need to show equity in other property.

Also as deposit bonds are basically a piece of paper stating you're good for the cash come settlement time and not actual physical cash, vendors might not accept them. You would first have to ascertain whether it would be accepted.
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I spoke with the Vendor today and they are happy to accept the deposit bond.

Also found a deposit bond provider who will accept a guarantee over my parent's property as security (equity). Now to prove to my parents that I would be good for the deposit come settlement. Nice big xmas pressie coming for my parents this xmas.
 
Worse case scenario, if you don't have a deposit nearing settlement and if they are willing, you can take out a guarantor loan for the full 100% of the purchase price using their equity in the same way.
 

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Visions said:
Worse case scenario, if you don't have a deposit nearing settlement and if they are willing, you can take out a guarantor loan for the full 100% of the purchase price using their equity in the same way.
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Cheers mate.

I wouldn't be purchasing the property without a deposit (at settlement) of no less than 25% or thereabouts.

Good thing is im able to access a fully flexible (premier advantage) loan with a deposit of 15% and no LMI.
 
Astro_ said:
Cheers mate.

I wouldn't be purchasing the property without a deposit (at settlement) of no less than 25% or thereabouts.

Good thing is im able to access a fully flexible (premier advantage) loan with a deposit of 15% and no LMI.
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It's good that you think that way for an off the plan purchase, as the lender will be valuing it close to the settlement date, and if the market takes a dive, there is a chance it might be valued at lower than purchase price meaning you would have to come up with a larger deposit as a result. Not saying it will happen, but it's a possibility.

Don't deal much with Westpac, but I thought they ended their no LMI at 85% LVR policy last year?
 
Visions said:
It's good that you think that way for an off the plan purchase, as the lender will be valuing it close to the settlement date, and if the market takes a dive, there is a chance it might be valued at lower than purchase price meaning you would have to come up with a larger deposit as a result. Not saying it will happen, but it's a possibility.

Don't deal much with Westpac, but I thought they ended their no LMI at 85% LVR policy last year?
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Your right, one risk with buying off-the-plan is that you're exposed to market movements between now and settlement. I was speaking with a mortgage broker yesterday and she said some of her recent clients who purchased off-the-plan have had the bank value their properties at 5 - 10% lower than the purchase price at settlement. These off-the-plan properties were purchased 18 months - 2 years ago which some have said was the recent high in the market. Still its a real risk which must be considered.

Regarding Westpac and no LMI @ 85%, its a group called Proloan who I deal with. They write many loans with Westpac (they hold around 4% of WBC's loan book). They mainly deal with medicos who are actually offered 90% LVR and no LMI, however I can access 85% and no LMI for my clients and myself too. Helps young people looking to first enter the market.

All my calculations for myself are based on an interest rate of 7% p.a, which gives me a nice buffer. I also assume a pay rise of 3% p.a. which is well under what I usually get, but you can't afford not to be too careful when looking to enter the property market or any investment where a loan is involved.
 

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