How to pay a deposit when buying a home

Digital Editor · 13 September 2021
When buying a house, you will typically have saved a deposit. We take a look at what deposits are payable, when, and how you do it.

What is a deposit on a home?

The term ‘deposit’ is used in a few different ways when it comes to buying property:

  • Deposit on a contract: The deposit (or deposits) that a buyer will write down on a contract of sale. This is a portion of the sale price of the property being purchased, and is given to the seller (typically via their agent, solicitor or conveyancer) soon after you both sign a contract. The contract deposit could be all or a portion of the amount of money a buyer has saved up as their home loan deposit. There are generally two types of deposits that may be listed on a contract:
    1. Holding, partial or initial deposit (not compulsory)
    2. Full deposit, also called “balance deposit”
  • Home loan deposit: The money a would-be homebuyer has in cash that they have told their lender they will contribute towards buying the property. The bank then uses this information in assessing the buyer’s loan application. If they approve the application, they will typically grant a mortgage (also known as a home loan) to cover the difference between the deposit and the agreed sale price. When the contract is settled, the home loan deposit (minus the contract deposit that has already been given to the seller) and the funds generated by the mortgage are transferred to the seller. The buyer then gains ownership of their new property and starts repaying their mortgage.

It may be a wise idea to become familiar with these terms, as it could help during the negotiation process when buying a home. Sometimes, buyers may choose to use the size of their holding or full deposit as a bargaining chip to edge out the competition and secure their dream home. But it’s important to remember that even if you do have a large sum saved when you go to buy a home, you don’t necessarily have to put the full amount down as the deposit on the contract. And it could be handy to know that holding deposits aren’t compulsory.

This article is about the two types of deposit that you write down on the contract – holding deposits and full deposits. To explore home loan deposits further, this article may help: Home loan deposits: What are they and how much do you really need? If you’d like some more background, these stories may also be of interest: How to buy a house; How to make an offer on a house.

This article covers (click heading to go to section):

What is a deposit on a home?

Home deposit vs holding deposit: what’s the difference?

1. Holding Deposit

    • How does a holding deposit work when buying a house?
    • When do you pay the holding deposit?
    • How much is a deposit to hold a house?
    • Is a holding deposit refundable?
    • Is a holding deposit part of the full price?
    • How do I pay a holding deposit?
    • How can I get a good deal on a home loan?

2. Full deposit

    • How much is the deposit on a home?
    • What is the average first home deposit in Australia?
    • Why should I aim for a big home deposit?
    • ‘How long does it take to save for a home deposit?
    • When do you pay a deposit on a home?

Home deposit vs holding deposit: what’s the difference?

The main difference between a home deposit and a holding deposit is that the home deposit is usually compulsory while the holding deposit is never compulsory. A holding deposit is an optional amount of money a real estate agent may ask you to pay – or you may decide to offer to pay – if you express interest in buying a property. A home deposit, also called a full or balance deposit, is the amount of money that you’re legally required to pay as a home buyer to secure a property that’s available for sale. A home deposit is typically a larger amount (for example, between 2.5% to 10% of the purchase price). A holding deposit is generally smaller. The full deposit is negotiated between you and the buyer. If you do decide to pay a holding deposit as a buyer, the amount is typically negotiated between you and the seller, except for in South Australia where a limit of $100 applies. Both these types of deposits are considered as part of the purchase price (not an extra fee on top of the purchase price).

1. What is a holding deposit on a real estate contract?

How does a holding deposit work when buying a house?

A holding deposit is an initial (and optional) sum of money that you pay the vendor before the contract becomes legally binding. For example, a buyer might offer one hoping it will give them the edge over the competition if a vendor receives multiple offers (although it’s worth noting that there is no guarantee this tactic will work). It forms part of the full deposit. Let’s say, for example, you’ve seen a home you want to buy. You make an offer to the seller, detailing how much you would like to pay for a holding or initial deposit and as a full deposit. After a bit of negotiating, your offer is accepted. At this point, you would then likely pay the holding deposit. Regardless of whether you choose to pay a holding deposit, if the seller agrees to your offer to purchase their property it can take a few days for the sale contract to be drawn up so that your name appears on the paperwork as the buyer. Once you and the buyer have each signed a copy of the contract, the sale becomes binding. This is when you pay the official full or balance deposit and you’re on track to become the proud owner of your new home!

When do you pay a holding deposit?

If you decide to or agree to pay a holding deposit, it should normally be paid when your offer on a property is accepted. A holding deposit is not compulsory, so even if a seller or their real estate agent asks you for a holding deposit, you do not have to pay it.

How much is a deposit to hold a house?

How much you pay in a holding deposit varies according to negotiations between the seller and the buyer, except for in South Australia where it is capped at $100. If you do put down a holding deposit, be sure you get a written receipt from the real estate agent.

Is a holding deposit refundable?

Remember, a holding deposit is handed over before the sale contract is signed, when you and the seller only have a verbal agreement – not a written, legally binding agreement. The upside of this is that if you change your mind about buying the home, the holding deposit should be fully refundable. The drawback is that without a signed contract, the seller is legally allowed to accept a higher offer from another buyer – something known as gazumping. If that happens, the holding deposit is fully refundable. So you should get the money back if someone else’s offer is accepted – though this can be slim consolation for missing out on a place you love.

Is a holding deposit part of the full price?

Yes – a holding deposit, if you decide to pay it, is part of the full sale price of a home and is considered part of the full or balance deposit (see above for more information). The role of the holding deposit is typically only used to show that an offer is serious, and that a buyer is keen to take the next step of signing the contract of sale. So a holding deposit is not an extra cost on top of the home’s selling price.

How do I pay a holding deposit?

Typically, the holding deposit is paid via electronic bank transfer to the seller’s real estate agent, who holds the amount in a trust account (on the seller’s behalf). Some agents may prefer other payment methods, such as cash, but it is important to keep evidence of the transaction and to receive a written receipt. This is in case a refund is required, or if you are successful in securing the property (in which case you’d forward that receipt to your solicitor). You will most likely need to have proof that you have paid the holding deposit.

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2. What is a full deposit on a real estate contract?

A full deposit on a real estate contract is a sum of money the buyer promises to give to the seller, usually via their agent or solicitor, to legally activate the sales process. It is also called a balance deposit, contract deposit or purchase deposit, and most often applies to private treaty sales. Once the full deposit is paid and any “cooling-off period” has passed, the buyer’s and seller’s solicitors work through the contract terms, including liaising with the buyer’s lender if there’s a home loan involved, with the goal of achieving settlement. The deposit is a portion of the total contracted sale price of the home.

How much is the deposit on a home?

When talking about the deposit written on a contract, how much it is depends on the outcome of negotiations between the buyer and the seller. Common amounts used in Australia can range between 2.5% to 20% of the total sale price, according to a range of conveyancing sources reviewed by Canstar. However, this amount can vary widely due to the negotiation process and according to the conditions of individual contracts.

Both parties have to agree to the amount of deposit that is to be paid, and sign a contract with the deposit listed on it and the date it is to be paid, before it is considered to be legally binding. It’s a good idea to keep in mind that a buyer could risk losing a portion of the deposit if they were to withdraw from a contract, or even all of it under certain circumstances. Offering a larger deposit could mean that this penalty ends up being larger as well. It could be a good idea to consult a conveyancing solicitor if you do need to withdraw from a contract after you’ve signed it.

For information about how much of a deposit is needed to get a home loan, this article may help: How much do you really need for a home loan deposit?

When do you pay a deposit on a home?

In a standard property sale, the home deposit has to be paid when you exchange the signed copies of the sale contract with the seller (or ‘vendor’