Is it possible to lose your home loan deposit?
The short answer is yes, you can lose your home loan deposit but it is a bit complicated as it depends on where you live and the contract terms.
Buying a home is a big commitment that comes with an early hurdle - an initial deposit, and it’s usually in the tens of thousands of dollars. A home loan deposit is your first contribution to the purchase of a property and it means that you own a small portion of the home. This initial deposit coincides with signing a contract that details the passing of ownership and the confirmation you will be paying for the property.
During this time there is a cooling-off period, which differs 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.
Cooling off periods in Australia
- New South Wales, Queensland and ACT have a five business days cooling off period. If you pull your offer 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, 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 when the seller and buyer sign the contract. 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 you may lose your deposit and will be required to pay penalties. If you have a valid reason to withdraw (ex. 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.
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 not always approve the loan and it leads you to 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.