How to buy a house with no money down
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Deposit guarantees are used as an alternative to the 5% or 10% cash deposit payable at the exchange of contracts, which is typically sourced from a purchaser’s own savings.
Deposit guarantees are proving attractive to a range of homebuyers, including investors opting to buy off-the-plan properties, as well as those who are reluctant to liquidise assets prematurely, or take out expensive personal loans.
Deposit guarantees are issued by insurance companies and are often sold through agents. Fees are based on the amount of the deposit and the duration of the term required. The cost generally equates to about 1% of the deposit amount. In the event that the purchaser defaults under the contract of sale the vendor can claim the deposit from the insurance company. The insurers will then pursue the purchaser to recover the unpaid money.
Advantages
§ They provide flexibility for those whose capital is tied up in assets, such as another home or a fixed term investment.
§ Your savings and investments continue to earn you interest right up to settlement date rather than being tied up with a real estate agent or solicitor.
§ Offers a considerable price advantage over a personal loan or short term credit facility.
§ A long-term deposit guarantee can extend up to four years making it easy to buy off-the-plan property where settlement might not occur for years.
§ You can use the guarantee at exchange of contracts and with most guarantees expiring after three to six months you can attend a number of auctions ensuring you have the deposit covered for that successful bid.
§ Deposit guarantees are generally quicker to access than cash tied up in assets enabling you to move quickly on purchases.