The Bank's Deposit
When a bank or mortgage broker talks about your deposit, they are referring to the total amount of money you are contributing towards the purchase price of the property, including your savings and your KiwiSaver funds (if eligible).
This amount affects how much you need to borrow and enables them to calculate your Loan-to-Value Ratio (LVR), which is the percentage of the property's value that is being borrowed from the lender.
Some lenders may approve lending with a smaller than 20% deposit, particularly for first-home buyers, subject to the lender's lending criteria and Reserve Bank lending restrictions.
The Agreement Deposit
When a real estate agent asks about the deposit, they are referring to the deposit payable under the Agreement for Sale and Purchase.
This deposit is usually 10% of the purchase price, although the amount can be negotiated and may be lower if the vendor agrees.
The deposit is generally paid to the real estate agent's trust account once the agreement becomes unconditional (or earlier in some cases). It forms part of the purchase price, the remainder of which is paid on settlement day.
Why the Difference Matters
It is important not to assume that the deposit required under the Agreement for Sale and Purchase (the Agreement Deposit) will be available from your mortgage funds.
The Agreement Deposit must be paid either upon signing the Agreement for Sale and Purchase, or upon it becoming unconditional – in either case before settlement. Whereas mortgage funds, KiwiSaver withdrawals and some other funding sources are not available until settlement day.
Before signing an Agreement for Sale and Purchase, you must work out how the Agreement Deposit will be funded from cash already available to you. If your available cash is limited, you will need to negotiate a lower Agreement Deposit amount with the vendor.
We are happy to discuss your situation with you before you sign your Agreement for Sale and Purchase, if you are unsure about any of the above.
