Property ownership is a significant milestone in many people lives. Buying a new home is an exciting prospect for many people and requires careful planning and consideration given the substantial financial commitment involved.
The process of buying a home is made up of several critical steps, the first of which is making a deposit. This guide will discuss the legal requirements and deposit rules for purchasing property in NSW, so that you can navigate this critical process with confidence.
What is a Deposit?
When purchasing property, the term deposit can be used in two different ways.
A holding deposit on a contract is a sum of money paid by the buyer to the seller after the contract was signed to indicate their commitment to purchasing the property. The deposit is usually a percentage of the total purchase price of the property and secures the buyer’s interest whilst the sale is being finalised.
A home loan deposit is considered by banks when evaluating the buyer’s loan application. If the home loan application is approved, they generally provide a mortgage to cover the gap between the deposit and the agrees sale price. Once the contract is finalised, the deposit and mortgage funds are transferred to the seller and the buyer officially owns the property.
What is The Standard Deposit Amount When Buying a House in NSW
In Australia, the standard deposit amount for purchasing a property is typically around 10% of the sale price, however this figure can change depending on the transaction and the agreement between the buyer and the seller.
How Can I Pay My Deposit?
- Home Loans
If a home loan application is approved by a bank, the bank will issue a mortgage to bridge the difference between the deposit and the agreed sale price. After the contract is finalised, the deposit and mortgage funds are sent to the seller, and the buyer officially becomes the owner of the property.
- Bank Cheques
A bank cheque is a secure form of payment issued by a bank guaranteeing the amount of the cheque. This method is widely accepted in property transactions as it ensures that funds are readily available which reduces the risk of bouncing payments.
- Electronic Transfer
This allows the buyer to transfer funds directly from their bank account to the seller’s account or their legal representative’s trust account. EFTs are quick and convenient and hence they are often a popular choice for deposit payments.
- Personal cheque
A personal cheque may also be used for deposits, but it carries more risk since it may not guarantee immediate funds. Many sellers will have a preference for bank cheques or EFT’s as they are prompter and more reliable.
When Do I Need to Pay My Deposit?
The dates in which payment of the deposit is required will depend on whether the purchase is made through a private sale or at auction.
Private Sale
In a private sale, the buyer will negotiate with the seller directly to agree on the price and terms. Typically, a deposit is paid once both parties sign the contract of sale, and the payment date is often flexible due to the negotiation that occurs. This method allows buyers more time to arrange their finances and conduct inspections before committing to the deposit.
Auction
When purchasing at auction, the deposit is usually required immediately after winning the bid, often at a higher percentage (roughly 10% of the sale price) than in a private sale. This approach creates a sense of urgency, as buyers must be prepared to act quickly. Additionally, once the auction concludes there is little room for negotiation, meaning the sale is considered legally binding.
Takeaways
Navigating the legal requirements and deposit rules involved in purchasing property can be challenging. To ensure that your interests are protected and to receive expert guidance throughout the homebuying process, we encourage you to consult with the experienced property lawyers at Owen Hodge. Our team can provide the support and expertise you need to make informed decisions and secure your dream home.
House Deposit NSW: Frequently Asked Questions
After agreeing on the sale price and signing the contract, the buyer pays a deposit which is held in a trust account until settlement. This deposit signifies the buyer’s commitment and secures the property, preventing the seller from considering other offers. During the due diligence period that follows, the buyer can conduct inspections and arrange financing. At settlement, the deposit is applied to the purchase price, however if the buyer fails to meet their obligations or withdraws without a valid reason, they risk losing the deposit, which the seller may keep as compensation.
Whether a deposit is refundable or not will depend on the terms outlined in the contract of sale. In many cases, deposits are refundable if the buyer withdraws from the purchase due to specific conditions, such as failing inspections or not securing financing, provided these conditions are stipulated in the contract. However, if the buyer chooses to back out of the deal for reasons not covered by the contract, the deposit may not be refunded.
Whether or not you can change your mind after paying a deposit depends on the terms in the contract of sale. If the contract includes specific conditions that allow for a change of mind (things such as a cooling-off period, property inspections and financing) then you may be able to withdraw without losing your deposit. If you decide to back out for reasons not specified in the contract, you can risk losing your deposit.
Whether or not you need to place a caveat on a property depends on your specific circumstances and interests in that property. You may consider a caveat if you are a buyer who has paid a deposit but has not yet settled, as it protects your interest in the property until the sale is finalised.
It is highly recommended to engage a property lawyer when buying a house. A property lawyer can provide valuable assistance throughout the homebuying process by ensuring that all legal requirements are met as well as guide you through negotiations with the seller or their agent.