Last Updated: 20th September, 2022

When buying a home, you need to pay a deposit of up to 10% of the purchase price.

However, you may not always have cash in hand or want to use your savings to pay the required deposit.

This is when a deposit bond can help you.

What is a deposit bond?

A deposit bond, also known as deposit guarantee, is a substitute for cash deposits that are needed when buying a home or when bidding at auctions.

It is a guarantee that is used instead of cash to pay for your deposit when you exchange contracts on a property purchase.

The bond acts as an insurance that the buyer will come up with the deposit at the time of settlement.

The person who takes out the bond is responsible for paying the deposit amount and 100% of the purchase price at settlement.

If the buyer fails to close the purchase at settlement, then the vendor claims the deposit guarantee from the bond provider.

What is an auction bond?

An auction bond is a deposit bond that is issued without the details of the property being purchased.

This enables you to attend and bid at numerous auctions with one auction bond.

If you’re the successful bidder, you complete the details on the Auction Bond certificate before handing it over to secure the property.

Auction deposit bonds are used instead of an upfront cash deposit to secure a property at auction.

You only fill in the following details on the auction bond once you win at an auction:

  • Vendor’s full name
  • Property address
  • The final purchase price

The one-off fee for an auction bond is paid before it is issued. Once payment is successful, the auction bond is sent via post or through email.

Application for auction bonds can be done online through the providers’ websites.

You have to speak to your real estate agent, auctioneer or a vendor’s legal representative to confirm that an auction bond will be accepted.

How do deposit bonds work?

A buyer will apply for a deposit bond with a provider.

The buyer has to prove that sufficient funds will be available to complete the purchase at settlement.

Once it is approved, a certificate guaranteeing the deposit amount is issued.

This certificate is given to the seller or the seller’s solicitor, who will hold onto the bond until settlement time.

The seller or solicitor can only claim the deposit bond if the buyer does not pay the deposit by the time of settlement.

How to get approved for a deposit bond?

When settlement draws near, you eventually have to pay the deposit, plus full purchase price and additional costs like stamp duty.

Therefore, you have to show evidence that sufficient funds to complete the purchase at settlement.

To get approved, you have to show:

  • Your formal home loan approval.
  • If you do not have formal approval because you’re buying off the plan or at auction or the settlement takes more than 6 months, the bond provider will do an asset income and liability assessment.
  • A copy of the contract for property you wish to purchase.
  • Evidence of availability of funds like savings, fixed-term deposits, share certificates, etc.
  • Bank statements showing where the funds will come from at settlement.
  • If applicable, evidence of other funds like First Home Owners Grant.

We can lodge a deposit bond application on your behalf when you’re applying for a home loan.

Call us at 1300 889 743 or fill in our free assessment form.

How much does a deposit bond cost?

It usually costs about 1.3% of the deposit required, which is a one-off fee.

Short deposit bonds, which are valid up to 6 months usually cost around 1.3% of the deposit amount, while long term bonds, which are valid from 6 months to 48 months are looked into on a case by case basis.

For example, for a $300,000 purchase (if the settlement is less than 6 months), you will need a deposit of $30,000 (10% of the purchase price), the deposit bond premium is $390 ($30,000 x 1.3%).

You can use our deposit bond calculator for more details.

Who can apply for a deposit bond?

Anyone looking to buy residential or commercial property (whether it’s off the plan or established), including vacant land and even house and land package, can apply.

The following applicants are accepted:

  • Australian citizens and permanent residents
  • Trusts
  • SMSF
  • Registered business entities
  • Partnerships

What documents do I need to show?

To get approved for a deposit bond, the documents needed are a copy of contract of sale, copy of home loan approval, evidence of funds and copy of any grant letters (if applicable).

If you already have formal approval or will settle within 6 months: