Insurance company funding the deposit

[Account Closed]

In the UK buying off-plan is pretty common. Think new construction but where you are normally only looking a plans given the construction has not started. Maybe the demo work on the old building has not even started if this is a conversion or brown field site.

The lead time might be 2 to 5 years from when you put down your deposit and when the unit you are buying will come on line. The initial deposit amount is between 5% and 15% of the purchase price where anyone paying the lower amount commonly is agreeing to a series of payments that will add up to 15% over the construction period. The deposit is insured so the risk of a loss if the developer does not finish is largely not there. People buy early to get a discounted price or to get a price before the market rises. It is more or less a speculation play.

One issue is the deposit. The cash is tied up and you are not able to do much other than wait. No mortgage is needed but you still have your cash tied up.

In the last year or so an insurance company has come on to the scene. For a fee they will fund the deposit. In some ways you could say you are borrowing the deposit but this is not a loan. More like a performance bond.

Has anyone heard of anything similar in the US market?

John Corey