Recently a client putting together the terms of a contract to purchase a home came to us with a question regarding what was meant by the lawyers query regarding the deposit payment. As far as the client was concerned their deposit was the amount they were putting towards the purchase in addition to the home loan to make up the purchase price, yet this was not the figure the lawyer was looking for. So, what is actually meant by the deposit, and how does its definition differ between banks, solicitors and real estate agents?
The definition of the deposit as far as banks are concerned (And the one my client was thinking about) is the amount of equity that is provided by the borrower in relation to the value of the property being offered as security. For example, if you are purchasing a home for $360,000 and have $72,000 to pay towards the purchase, then you have a 20% deposit and your loan requirement for the balance of $284,000 equates to 80% of the purchase price. This deposit can be from a number of sources, such as your own savings account, Kiwisaver (For a first home purchase), gifting from a relative or equity existing in a property already owned. The level of funds available towards the purchase will obviously determine the size of home loan required, and the higher the deposit you are able to provide, the lower the repayment amount will be on your borrowing.
Confusion often occurs when it comes to signing the Sale & Purchase contract and the deposit required upon the purchase going unconditional is discussed. The unconditional date is the date that the contract becomes final and binding and a down payment of the purchase price is usually required. Most agents will recommend a deposit between five and ten percent of the purchase price, but this figure is negotiable dependent on buyers and vendors circumstances, but it is important to remember that the figure that you agree to pay when you sign a contract (which is a legal document) is the figure that you will need to come up with. More first home buyers are using Kiwisaver and Homestart funds for their deposit which may not be available until the date of settlement for the purchase, so it is important that you communicate to the real estate agent if a lower deposit than the suggested amount is going to be available, otherwise you will need to arrange an overdraft facility or find other funds to cover the cost of the deposit until such time that your loan, Kiwisaver and Homestart first home buyers subsidy can be accessed.
Your mortgage adviser will discuss your deposit options as part of the loan application process and can work alongside your solicitor and Real Estate agent to help with any arrangements or changes that need to be made. The last thing that anybody wants is for your purchase of that dream property falling over because of an oversight in what, how and when your deposit funds are going to be available.
