What are the Home Loan Deposit Requirements for Purchasing Property?

What are the Deposit Requirements for Purchasing Property?

The term ‘deposit’ has two main uses and meanings. They are not cumulative and are calculated independently of each other.
The 1st is the Upfront or Holding Deposit used when purchasing property. In this case it is used as a holding deposit for purchasing new and existing property. The vendor/developer will typically determine how much the upfront deposit will be.
The 2nd is the Equity Deposit which is the amount of deposit (equity) a lender will require depending on current lending criteria, the type of property being purchased and end use of that property.

Upfront or Holding Deposit Scenarios

Negotiation or deadline sale deposit – Typically a 10% deposit will be payable when confirm you wish to move forward with a property purchase unconditionally or when you have met your finance clause.
Auction or tender deposit – A 10% deposit would be payable if you are the successful bidder at auction or tender. If you want to vary this requirement, you need to negotiate this via your real estate agent, solicitor or directly with the vender.
Land Purchased Deposit – Often a 5% holding deposit is paid to the vender/developer while you do your initial due diligence on the land and build. The time frame to go unconditional with the purchase of the land is normally 10 working days, however due diligence will often be take a lot longer so extensions to these clauses are often negotiated.
Renovation or Construction Deposit – The upfront work for a builder to complete plans and apply for build consents and permits is substantial. They will often request a 5-10% deposit to complete and submit plans to council and another 5-10% deposit once building consents have been approved and construction is ready to commence.
Turn-Key Build Deposit – The builder or developer will ask for 5% – 10% deposit upfront. They will then finance the construction of the new build with the balance of the purchase price being paid at completion of the build.

Equity Deposit Scenarios

Deposit Required to Meet the Different Use Of Property – The type of property and use of that property will dictate how much deposit is required i.e. owner occupied 20%, Rental 40%, commercial 40%, serviced apartment 50%.
Low Deposit Lending – Banks will on occasion allow a purchase with less than a 20% deposit. These are referred to as low equity borrowers. Lenders will charge low equity fees and will have higher surplus income requirements.
Source of Deposit – Typically deposits will come from savings, sale of assists, kiwi saver, first home buyer grants, gifts, deed of debt, bonus income, and equity in other properties.
Lenders want to see that a borrower is committing at least 5% of their own savings/equity. The banks refer to this as genuine savings.