When buying a home, you must deposit 10% of the purchase price with the notary. However, you can also arrange for a bank guarantee instead of using your own money.
Why do you need a bank guarantee?
Picture this: your bid is accepted. The next step is signing a purchase agreement with the seller. After that, you have a 3-day cooling-off period to decide if you truly want to go through with the purchase. If you change your mind and decide to cancel within this period, there's no need to pay anything.
The next step is to secure a mortgage. You typically have around 6-8 weeks to arrange and get your mortgage approved. During this time, the seller is vulnerable. If you can't secure a mortgage, the seller loses the deal and has to start over. A deposit safeguards the seller if the buyer backs out of the agreement. That is why you need a bank guarantee or to pay a 10% deposit. Your mortgage broker can help arrange a bank guarantee via third parties that charge a fixed fee.
What is a bank guarantee?
Not everyone has sufficient personal savings to cover the deposit (10% of the purchase price) when buying a house. If you cannot pay this amount on your own, consider applying for a bank guarantee. In this case, the bank assures that it will cover the agreed deposit if you, as the buyer, fail to fulfil your obligations.
How much does a bank guarantee cost?
Normally, the cost of a bank guarantee is 1%. For example, for a house costing €350.000, the bank guarantee can cost approximately € 350. Please note the bank guarantee fee varies per lender. Some banks offer a bank guarantee; in other cases, a mortgage broker arranges it for you. The deposit is transferred to the notary, not the seller.
When can you expect the deposit to be returned?
If the house purchase is successful, the notary will return the deposit to you during the closing, as shown in the settlement invoice. Alternatively, you can opt to use the deposited amount for your new home's mortgage.
However, if the sale falls through, perhaps due to an inability to secure a mortgage, the seller may request the deposit under specific conditions outlined in the purchase contract's resolutory clauses. In the case of a bank guarantee, the bank covers the deposit for the seller, and you are then obligated to repay the bank.
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