Is it possible to lose your home loan deposit?

Is it possible to lose your home loan deposit after a property deal gone bad? The short answer is yes, you can, but it depends on where you live in Australia and the contract of sale terms.

Buying a home is a big commitment that comes with an early hurdle: an initial home loan deposit, a cost usually in the hundreds of thousands of dollars. A deposit is your first contribution to the purchase of a property while the mortgage covers the rest. Your deposit means you own a small portion of the home from the get-go.

Paying this initial deposit usually coincides with signing a contract that details the passing of ownership and the confirmation you will be paying for the property. 

If you bought your property via a private sale, there may a cooling-off period during this settlement time, which differs in length between state and territory. This period starts when you receive a copy of the signed contract between you and the seller. In the cooling-off period you are permitted to cancel the sale, but the cancelation does not always guarantee that you get your deposit back.

If you decide to cancel your contract after the cooling-off period, you will likely lose your entire deposit and be expected to pay compensation and penalties to the seller.

Note if you bought the property at auction, you are legally liable to pay the entire deposit — even if you can't, and even if you back out. (Here's what happens if you overbid at auction and can't pay the deposit).

Cooling off periods in Australia

• New South Wales, Queensland, and the ACT have a cooling off period of five business days. If you pull your offer to buy a property during this period, you will be required to forfeit 0.25% of the purchase price. The seller has 14 days to return the rest of your deposit.
  
• Victoria has a three business days cooling off period, and if you cancel your offer during this time you will have to pay 0.2% of the total purchase price. Then the seller will transfer back your deposit within 14 days.
  
• South Australia has a two business days cooling off period from when the buyer receives Form 1, which may be given with the contract or after the contract is given. If you cancel during those two days and you have paid a deposit over $100, then you’ll receive your deposit back in full.
  
• Northern Territory has four business days cooling off period which you can take back your offer with no consequences and receive your full deposit back.
  
• Western Australia has no statewide cooling off period, but you can organise one in your contract of purchase with the seller. However, if you withdraw during the cooling off period, you may lose your deposit and will be required to pay penalties. If you have a valid reason to withdraw (for example, your home loan gets declined) then the seller must return your full deposit.
  
• Tasmania also has no cooling off period. If you change your mind about the purchase, then the seller will keep your full deposit and you may be asked to pay liquidated damages fees.

Be aware that houses bought at auction do not have a cooling off period.

Unconditional offers to buy property

Another way you might lose your deposit is through unconditional offers. As the name implies, unconditional offers have no conditional clauses, meaning that the buyer must purchase the property regardless of whether their finances are approved or not or if they’ve inspected the property or not.

With unconditional offers you run the risk that a lender may reject your home loan application, which could lead to you losing your deposit. 

If you are thinking about buying a new home, check out Mozo’s Home Loan guides to prepare you in taking the next steps and avoid losing your deposit.