Vendor Deposit Finance is given by a vendor of a home mortgage to finance the deposit to purchase, in addition to the finance the purchaser gets from a financial institution. In the Australian real estate marketplace this type of financing is officially recognised. The ‘deposit finance’ should be repaid with interest as a balloon payment between 2 and 5 years. The seller uses vendor deposit finance as a way to sell their homes faster than they would in the normal process. The buyer also benefits as there is a small deposit or no deposit at all to stop paying wasted rent.
The benefit of vendor deposit financing is that you own your home instead of renting and get rid of the landlord’s control over what you can do and cannot do in the house. The money you pay as rent does not contribute towards your future whereas the money you pay towards owning the home builds equity in the house and helps you to build your assets. When the rates of rent and owning increase your future is secured with the money you now put into the ownership of the house. You can renovate, decorate or modify your house whenever you want. Home ownership is possible without the 20% deposit, good credit rating and the usual requirements stipulated by banks thanks to the vendor financing.
Vendor deposit finance is an agreement under which the owner of the property provides the finance for buying the property to the purchaser. The purchaser can occupy the house but he/she will own the property only after all the money due to the vendor has been paid. The purchaser pays interest at a higher rate than the standard home mortgage in this arrangement. The cost of the house may also be slightly higher. This process of owning the property may seem expensive but buyers are willing to bear the higher cost to be able to enjoy home ownership. The higher purchase price and the premium interest rate may be the only available effective way for home buyers who would not otherwise qualify for any other traditional financing. The purchaser of the property buys it directly from the seller and saves the expenses on middlemen or agents.
Who's eligible?
- Buyers who do not have enough savings for deposit
- Self employed without proof of stable income
- People with credit problems
The purchasers under the vendor deposit finance should be aware that the short term finance comes with inflated rates while the price of the property may not increase dramatically over a short period. Buyers must be satisfied that they can afford the high cost of the vendor deposit finance and involve risks to the purchaser. They have to shell out much higher payments. The other costs of home ownership are rates, water and sewerage, insurance and maintenance are other add-ons to the already heavy payments. It must be remembered that the payments can go up or down with the change in interest rates on the mortgage. Vendor deposit finance should be considered as one of the many high cost options towards home ownership for the Australians who dream of owning their homes and stop paying rent.