Buying a house: are the deposits still necessary?
When it comes to buying a home, nothing catches the seller’s attention as much as a deposit. The payment of a deposit when signing an offer to purchase (OTP) is considered as proof of commitment.
A down payment – usually 10% of the cost of the property – tells both the banks and the seller that you are a serious buyer.
However, while deposits were once an integral part of the home buying process, the latest statistics released by Ooba Group indicate that no deposit home loan approvals are on the increase.
Rhys Dyer, CEO of Ooba Group, said: âDuring the first quarter of 2021, we successfully secured mortgage financing for 80.7% of our applicants, 61% of whom applied for an unsecured loan. The first-trimester approval rate among first-time buyers who needed a no-deposit loan was 79.3%. “
This raises an important question: is a deposit still required to buy a house?
âIt’s not that simple,â Dyer said. “While this data underpins banks’ favorable lending criteria in recent years, a deposit remains the best way to secure an approved home loan application.”
“With a deposit, you prove to the banks that you can finance at least part of your home purchase, which makes your loan less risky and indicates your ability to make monthly payments.” he said.
As well as increasing the chances of your home loan being approved, Dyer said there are still plenty of additional reasons why a deposit will benefit you – as a buyer – in the short and long term.
Short-term savings can lead to long-term disadvantages
While it might be tempting to think that not making a down payment upfront reduces the cost of buying a home, this short-term saving will cost you more in the long run.
Simply put, a deposit reduces the amount you have to pay back to banks. âLower monthly repayments reduce the amount of interest you have to pay on your home loan over the borrowing period – and that should work for you in the long run,â Dyer said.
âThe less you borrow, the less you have to repay – and that’s a huge plus when you do the math. A deposit also gives you some leverage when negotiating a better interest rate because you have turned out to be less risky.
Dyer said that an added benefit of posting a bond is that it will help you stand out from the crowd when competing for your dream home.
âWe’re still in a buyer’s market and the competition is fierce – but if you find yourself in a situation of multiple offers on a property and you put down a down payment, the seller is more likely to accept your offer than it is. it is not. âOther potential candidates. buyers, âhe said.
Read the fine print
Dyer is warning potential buyers that they may not have the option of making a down payment. âAn OTP on certain properties could specifically include a stipulation that the buyer pays a deposit and that failure to do so constitutes a breach of contract. This gives the seller the right to cancel the transaction.
Secure your deposit
Once you’ve weighed your options and decided to make a down payment, the next hurdle arises: How do you best secure it?
With the majority of real estate transactions taking place online, the opportunities for cybercrime are plentiful, leaving buyers vulnerable to the loss of their deposit.
These types of crimes commonly and easily occur when email recordings between the agent, the buyer and the respective attorneys to whom the deposit is paid are intercepted by a malicious third party. This is commonly referred to as phishing.
âUnfortunately, these crimes can go unnoticed because the buyer traditionally has little or no visibility into the deposit once the money is paid,â Dyer said.
The general process is as follows:
- The deposit is mentioned in the offer to purchase and must be paid upon acceptance.
- The deposit is placed in a trust and hopefully kept in a safe place until the ownership transfer and registration process is complete.
Dyer said most buyers mistakenly think they have only two options for managing the trust: the assigning lawyer or the real estate agent.
âThe Ooba group wanted to offer buyers a third option to manage their deposit securely, one that would ensure full transparency on the deposit process until the end of the transaction. “
âThis is where Buyers Trust (a subsidiary of the Ooba group) comes in. The system has been designed with countless security measures to protect it against cybercrime threats to attorneys and real estate agencies. Buyers Trust also gives you full visibility of your deposit at all times, in an account in your name, so you will have 100% peace of mind about the security of your deposit.
Getting the most from your deposit
For many buyers, the primary motivation for making a down payment when buying a home is the desire to save as much money as possible over the long term.
Dyer said Buyers Trust is structured with those savvy buyers in mind by providing maximum return on investment.
âChoosing buyer trust means buyers are more likely to earn better interest on their deposit than if they had given the account to a transfer lawyer, as well as to receive fees as a whole. included with no unforeseen costs, âhe said.
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