Saving for a deposit is one of the major hurdles for home buyers and some may miss out on a property as they do not have enough money saved. 

Deposit bonds can be an answer for those who do not have a cash deposit readily available. A deposit bond is a guarantee made by a deposit bond provider that the buyer will have the funds to pay the required deposit at settlement. Even if the buyer defaults, the vendor will still receive their deposit from the deposit bond provider.

There are several reasons why you may consider using a deposit bond over a cash deposit. You may be a first home buyer who is borrowing 95% of the purchase price and only need a 5% deposit; you may be waiting for funds from equity release or a sale from a different property. Or you simply have funds locked in another investment and hasn’t matured just yet. Deposit bonds are also often used at auctions to help make the process quicker and easier.

The number of home buyers using deposit bonds has increased as it can help you exchange contracts sooner and speed up the purchase process. Time makes all the difference in the property market and you could miss out on your dream property if you don’t move quickly enough. 

But before opting to choose a deposit bond, you will need to consider which type would best suit your situation – a short term or long term deposit bond.

A short term deposit bond lasts for three to six months and is a popular option for those buying at auction. A long term bond best suits properties that have not completed construction such as off the plan developments. These deposit bonds last between 12 to 48 months.

Depending on the type of property you wish to buy, you will need to consider whether you will have sufficient funds to pay the deposit at settlement. For example, if you are buying off the plan and use a deposit bond, you will have more time to save for a deposit than if you were to buy at auction. Remember, a deposit bond does not replace a deposit- even though you are guaranteed; you will not skip repaying the amount.

Most vendors will be willing to accept a deposit bond as an acceptable form of payment, but in order to avoid any problems or misunderstandings, confirm with the vendor that they will accept a deposit bond. You may also want to employ the services of a solicitor to ensure the clause is included in the contract. 

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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.