How a Deposit Bond can help first home buyers

Getting into the property market can be frustrating. Once you’ve found a property you love and can afford, you’re faced with an even bigger challenge:

How do you get access to the 10% deposit?

The good news is there’s a solution that is increasingly popular amongst first home buyers who simply don’t have enough cash sitting in the bank for the deposit:

Deposit bonds.

A clear and sharp visual representation of an 'IOU' note, featuring a simple, handwritten-style note that reads 'IOU' in bold, legible letters, with the words 'I Owe You' spelled out underneath. The note is attached to a refrigerator with a small round magnet. It is crisp and clearly visible, placed on a sleek, slightly reflective fridge surface. The background includes subtle, blurred kitchen elements, ensuring the focus remains on the note. The scene is brightly lit to emphasize the text, creating a warm and homely atmosphere.

What is a deposit bond?

Think of a deposit bond as an IOU for the deposit amount you need to secure your property. You use the deposit bond in place of the cash deposit required between signing the contract of sale and settlement.

Just like a cash deposit, a deposit bond guarantees your commitment to an unconditional contract of sale. Then, at settlement, you pay the full purchase price, including the deposit amount and other costs (stamp duty, etc).

Deposit bond advantages for first home buyers

1. Deposit bonds are often cheaper than borrowing

The cost of a deposit bond is often cheaper than the cost of borrowing funds to pay the deposit. For example, if you are settling under six months and hold a finance approval that is unconditional, the one-off deposit bond fee is usually 1.3% of the deposit bond amount. So, for a $50,000 deposit bond, you pay a $650 fee.

2. Deposit bonds are a flexible option when using a family guarantor

Maybe you’ve asked mum and dad to leverage the equity in their home so you can get a family guarantee loan. The next hurdle is how do you come up with the cash deposit or supplement the savings you have worked hard to achieve? A deposit bond is the convenient option because you don’t have to provide the cash until settlement, when your finance comes through.

3. Deposit bonds are quick and easy

Buying a house can be a stressful process. Applying for a deposit bond is the complete opposite! In most cases, all you need to do is sign a simple application form and provide the finance approval letter. Typically, the deposit bond can be issued within a business hour.

4. Deposit bonds can be used for auctions

Auction bonds are a special type of deposit bond used to buy property at auction. Think of it as a blank cheque. If you have the winning bid, you simply write in the amount of the deposit and hand it over to secure your purchase. The best part is, if you aren’t successful at the first auction, you can use the auction bond for the next and the next, until you are successful.

Summary

Flexible, low cost, easy to arrange… it’s no wonder more first home buyers are turning to deposit bonds to secure their property purchase.

Here are three facts you need to remember about deposit bonds:

A deposit bond is not a loan, so there’s no interest.
A deposit bond guarantees your commitment to an unconditional contract of sale.
A deposit bond is ideal if you don’t have access to the 10% cash deposit immediately but know that you will by settlement time.