When you are looking to buy a house there are two separate “deposits” that get discussed.
There is the deposit that you pay to the real estate agent (the purchase deposit) and there is the amount you need so the bank will lend you the rest of the purchase price (the equity deposit).
The purchase deposit
When you making an offer to buy a house, you will always be asked for a purchase deposit (usual between 5% and 10% of the purchase price).
The purchase deposit is the cash you can pay as a show of good faith.
The purchase deposit amount is usually recorded on the front page of the Sale & Purchase Agreement. You can choose to put a percentage or a dollar figure.
We recommend that the agreement state that the deposit is only payable when you confirm your conditions (not immediately upon signing). If the purchase deposit is not paid on time the vendor has options to cancel the Agreement or charge you penalty interest on the unpaid deposit.
You should have the Purchase deposit funds available when you make an offer to purchase. It should not be more than amount you can pay from cash savings.
If you have no cash savings then put “Nil” for the deposit.
What about Kiwisaver for purchase deposits?
Want to use your KiwiSaver funds to pay the Purchase deposit then let us know early in the process so we can discuss this with you.
It is not easy to use your KiwiSaver to pay a purchase deposit under an Agreement for sale and purchase.
First issue are the timeframes. Many KiwiSaver providers can take up to 15 working days to process your withdrawal application and pay out (after receiving all the documents they require). If your purchase deposit is payable before the KiwiSaver funds arrive then you risk the vendor cancelling the Agreement or charging you penalties.
Secondly, your Kiwisaver can only be paid to someone who promises to hold the funds on special terms until the settlement date (it therefore cannot be paid to the real estate agents like it usually is). If you plan to use your KiwiSaver for the purchase deposit under an Agreement then you must see your lawyer so additional clauses can be added to the Agreement to address these issues.
The Equity Deposit
The equity deposit is the total amount of money you are putting towards the house purchase. Typically banks will require you to have 20% of the purchase price before they will lend you the remaining 80%.
So for a $700,000 house you need a minimum equity deposit of $140,000 (20%), but the purchase deposit could be only $35,000 (5%); paid from your equity deposit.
We are here to help you understand all aspects of buying and selling houses, so don’t hesitate to call the friendly team at Hayman Lawyers.