Home loan deposits explained

If you’re saving hard for your deposit, you may be wondering why you need one and what exactly you’re meant to do with it.

What is a home loan deposit?

A home loan deposit is your initial contribution to the purchase price of a property. It means that you own a small portion of the home. 

When you have a stake in the property it reduces the lender’s risk. That’s why generally, the lender will require that you have a deposit.

Many lenders now require a deposit of 20% of the purchase price (excluding transaction costs). Some will accept lower deposits but you may have to pay Lenders Mortgage Insurance.

You’ll also need additional savings to meet transaction costs like solicitor/conveyancer fees, stamp duty and other charges. 

If you’re not eligible for exemptions or concessions, stamp duty costs can be substantial. Use our home loan deposit calculator to see how much you’ll have left for a deposit after stamp duty and other costs. 

Is a bigger deposit better?

Saving as much as you can for your home loan deposit could pay off in the long run. Firstly, it shows that you are disciplined with money. This may help with your loan approval.

Secondly, a deposit over the 20% mark means you generally won’t have to pay Lenders Mortgage Insurance.

Finally the bigger deposit, the less you have to borrow.  That usually means lower repayments.

Who do I pay the deposit to?

When you buy a property, you pay a deposit to the vendor as part of signing a contract of sale. This is usually 10% of the purchase price and serves as a part payment before settlement takes place. At settlement, you will officially own the property and pay the remainder of the purchase price. 

Once you’ve signed the contract of sale, you’re legally bound by its terms. Your deposit either goes to the vendor, or if they’re selling through a real estate agent, you’ll need to pay it into the agent’s trust account. Ask the vendor or real estate agent who to make the cheque out to.

When do I pay the deposit?

In a private sale, you pay the deposit once you and the vendor have exchanged signed contracts.

If you buy at auction, you must sign the contract and pay the deposit on the day.

How can I pay my deposit?

Here are the common most ways to pay a deposit:

• Personal cheque - Cheques aren’t used much these days.  But they’re still a common way to pay on auction day.
• Counter cheque - You’ll need to get one from a branch if you’re intending to buy at auction.
• Bank transfer - Some vendors accept a bank transfer – although most internet banking accounts have a daily transfer limit. Check that your limit will be enough.

It’s a good idea to ask the real estate agent how they prefer to receive the deposit. This is especially important if you’re intending to buy at auction, as it gives you time to move money between accounts or organise cheques.

Learn more about paying a deposit.

What is a deposit bond?

If your deposit is tied up in other assets or investments, you may be able to use a deposit bond instead. A deposit bond is a guarantee to the vendor that you will pay the deposit at settlement.

Not all vendors and real estate agents accept deposit bonds. You’ll need to check before you bid or buy.

ANZ does not offer deposit bonds. Please contact your legal or financial adviser who may be able to provide you with more information about deposit bonds.

To sum up

• A home loan deposit is your contribution to the purchase price of a property.
• A deposit below 20% may mean you pay Lenders Mortgage Insurance.
• If you buy at auction you pay the deposit on the day.