Deposit or Deposit? I’m confused…

Deposit? or Deposit?

Something that can often confuse clients when going through a purchase, especially for their first home is deposit.

On one hand you have the deposit paid towards your finance. This is the total amount of money you contribute upfront to the purchase with the balance of the purchase price coming from the money you're lending. This is the part that relates to your Loan to Value ratio or LVR.

Say you have a combined deposit available from Kiwisaver of $90k and that’s all that you’re using towards the purchase of your home with a purchase price of $750k. Well you’re putting up a 12% deposit towards your purchase and borrowing 88%, so your LVR is 88% in this instance. Simple.

On the other hand, you have your deposit that is paid at unconditional, referred to as finance date on the agreement. This is where you are agreeing to purchase the property as per the sale and purchase agreement, have met your required conditions on the agreement and you’re putting down some money to commit to the purchase.

Let’s say the deposit required in the agreement is 10% so $75k of the $750k. When your solicitor confirms the agreement as unconditional, they’ll use $75k of your $90k total to pay deposit on the agreement leaving $15k left in their trust account to be put towards the purchase on settlement date along with the funds you're lending for the purchase.

At this point, you’ve met your deposit requirements for the purchase and, have the required funds available for when settlement date comes.

In many cases, this point marks the start of the stage where things get a lot easier and less stressful as you start the road to settlement date and can get excited about your new purchase