You have been saving for years and you now have enough money saved to start your hunt for your dream home. Before you start looking at properties, it’s a good idea to speak to your bank, or to a mortgage broker, to find out how much you can borrow and to start the pre-approval process.
It is unusual for a bank to agree to lend you 100% of the purchase price of the property. This means that you will need to provide a portion of the purchase. This can happen in several ways.
Real estate deposit rules in QLD
When you enter into the contract, you will normally be asked to pay between 5-10% of the purchase price to secure the property. It is unusual for the bank to advance this amount to you as they will not be able to lodge their mortgage on the property at this time. Therefore, you will need to have the cash available to pay the agreed amount. This is normally paid to trust account held by the Agent or the Seller’s Solicitor, who will retain this in trust until the Settlement Date.
On the Settlement Date, your conveyancing solicitor and the seller’s solicitor will agree on the settlement figures. In these figures, your solicitor will deduct from the purchase price of the property the deposit that you paid, meaning that you only have to pay the balance owing. As an example:
Bob enters into a contract to purchase a property for $300,000.00. When he entered into the contract, he paid a $1,000.00 initial deposit when he signed the contract and then a further $29,000.00 when he obtained finance approval. Accordingly on the Settlement Date, Bob needed to pay $270,000.00 ($300,000 – $1,000 – $29,000 = $270,000)
Therefore, if the amount you have saved to purchase the property is equal to the amount you have paid as the deposit under the contract, you will not have to make any further arrangements for settlement. However, if the amount you have saved is more than the deposit you have paid under the contract, you will have at least one of the following options available to you, depending on which bank you have decided to obtain your loan from.
Conveyancer trust account
Whether you choose to finalise your settlement with a physical paper settlement or the electronic conveyancing platform (PEXA), you can provide the funds you are putting toward the property purchase to your conveyancing solicitor’s trust account. Your conveyancer will then provide those funds at settlement on your behalf.
The downside of using this option is that you must ensure that the funds are cleared into your solicitor’s trust account before the Settlement Date. If you are using this option, notify your Conveyancer as soon as possible so that they can provide you with an estimate of funds required from you. This will ensure you have adequate time to transfer the funds into your solicitor’s trust account. We strongly recommend that before you transfer funds to your solicitor’s trust account, you verify the trust bank account details by phone.
The benefits of using this option are that you may be able to save bank cheque fees, as some Sellers will accept trust cheques at settlement instead of bank cheques. Bank cheques normally cost between $10-$15 per cheque. You will also not need to drop bank cheques to your solicitor on the day, which can be tricky if you work long hours or have decided to move on that day.
Conveyancing settlement and bank cheques
If your settlement is being conducted by way of a paper settlement, you can provide the funds towards settlement by attending at your bank, obtaining Bank Cheques and then dropping these off at your conveyancing solicitor’s office.
The negatives of using this method are:
- Your conveyancing lawyer is unlikely to know the ‘Payee’ for the Bank Cheques and the precise figures until the morning of settlement. Sometimes this can be as late as midday before they know.
- Your property conveyancer may require you to bring in multiple cheques which may increase your bank cheque fees as the Sellers will not accept a personal cheque at settlement.
- You may find running around obtaining cheque’s a stressful process.
- If you bank with an online bank, you may not have this option available to you.
- If a settlement is occurring in a remote location, this option may not be available to you.
You should check with your lawyer if they charge a fee for using their trust account for settlement. If they do, you may save on costs by delivering cheques to their office. Plus, it can be really exciting when you feel like you have been a part of making settlement happen!
Nominating a shortfall account with your financier
Whether your settlement is being conducted with a physical paper settlement or on the electronic conveyancing platform (PEXA), you may be able to nominate an account with your Financier, which will allow them to draw upon your account for the purpose of settlement. If you can do this, you will simply need to ensure that you have put your savings in the account you have nominated and that these funds are in cleared funds. Your conveyancing solicitor and your bank will then manage the rest of the process for you.
Since some financiers do not have this option available for settlement, we recommend contacting your bank to find out whether this option is available to you.
Final thoughts: What happens with the money that I have saved for my property purchase?
There are many ways for you to provide the money you have saved at settlement. The best thing to do is to talk to your conveyancing solicitor and to discuss what is going to be the best option in your circumstance. At Brisbane Conveyancing, we are always available by phone to talk through these options and to answer any concerns or queries you may have.