Deposit bonds are used it situations when you don’t have the cash deposit available. For example, buyers who have sold an existing property, but the funds aren’t available, or funds are tied up in equity of another property or investments, First Home Buyers who don’t have enough savings or are using a family guarantee.

The deposit bond can cover up to 10% of the purchase price which is required to secure the contract.

If you have found a property you want to buy you will have to sign a copy of the contract and place a deposit – usually 10% – with the real estate agent. At this point you can apply for a deposit bond. You give the agent the deposit bond certificate instead of cash to secure the property.

If you are bidding at auction you would need to apply for the bond beforehand and take it to the auction with you so you can give it to the agent if you win the bidding.

So, the bond is given in place of the deposit and then the entire purchase amount is provided at settlement. Aside from the fee charged to purchase the bond, no money actually changes hands until settlement.

There is an application process, and it can be done quickly online with an immediate response. There are two different assessment options depending on your situation.

You may need to show a contract of sale, loan approval, evidence of funds to complete purchase (savings, shares or contract if selling a property) and statement for existing mortgage being repaid. Or, for equity use, a contract of sale (unless it is an auction), evidence of property ownership, recent mortgage statement – there are minimums applicable to the amount of equity available.

Once the fee is paid an email copy of the bond is sent immediately and the original is sent express post.

The fee for a short-term deposit bond is approximately 1.3% of the bond amount. So, the fee for a $50,000 bond will be $650.