Understanding the settlement shortfall (and how to prepare for it).
Many borrowers are surprised to learn that a home purchase involves more than just the deposit and loan approval. One of the most important — and often misunderstood — parts of the settlement process is the shortfall.
Your shortfall is the amount of money you need to contribute at settlement after your lender provides the loan funds. Knowing how this works, how it’s calculated, and where the money needs to be held makes the final stage of your purchase much smoother.
At Lumo, we help clients prepare early so that settlement day feels predictable rather than stressful.
What the settlement shortfall actually is
The shortfall is the difference between:
The total funds required to complete your purchase, and
The total funds your lender will contribute
You must provide this difference at settlement.
Shortfall = Total funds required – Loan amount
These funds are commonly used to pay:
The balance of your deposit
Stamp duty
Solicitor or conveyancer fees
Rates and water adjustments
Bank fees (if any)
Any remaining amount not covered by the loan
Every purchase has a shortfall — even if it’s small.
What makes up your total funds required
This depends on your contract and state, but typically includes:
1. Purchase price
Minus any deposit you’ve already paid, such as the 5–10 percent held in trust.
2. Stamp duty
Varies by state, property type and your eligibility for concessions.
3. Government fees
Transfer fees, mortgage registration fees and other statutory charges.
4. Legal and conveyancing fees
Usually paid at or before settlement.
5. Adjustments
Part-year council rates, water usage or body corporate levies.
6. Lender fees (if applicable)
Some products include small settlement or establishment fees.
Your solicitor will calculate these precisely in the days leading up to settlement.
How you pay the shortfall
There are two common methods.
Option 1 — Transfer the shortfall to your solicitor’s trust account
This is the traditional approach used by many smaller or boutique conveyancing firms.
Your solicitor provides trust account details
You transfer your shortfall funds before settlement
The solicitor contributes these funds in the PEXA workspace
Any leftover amount is refunded after settlement
This method is reliable but requires early transfer due to bank processing times.
Option 2 — Transfer the shortfall into your new lender’s transaction account
This is now the most common method used by major lenders.
After formal approval:
The lender opens a new transaction account linked to your home loan
You transfer your shortfall into this account
The lender automatically contributes these funds during settlement
Leftover funds remain available for you to use
This approach is simple and avoids delays caused by interbank clearing times.
At Lumo, we confirm early which method applies to your loan so there are no surprises.
Why timing matters
Shortfall funds must be cleared and available before settlement begins.
Delays often occur when:
Transfers are made too close to settlement
Daily transfer limits haven’t been increased
Trust transfers require additional verification
The source bank has slow clearing times
Large transfers trigger fraud or security holds
Preparing early prevents these issues entirely.
What happens if the shortfall isn’t ready
Settlement cannot proceed if your shortfall funds aren’t available. This can lead to:
Penalty interest charged by the seller
Rebooking settlement for another day
Potential contract breaches depending on your state
These situations are avoidable with clear preparation and good communication.
How to avoid shortfall stress
Confirm your shortfall amount early
Increase transfer limits ahead of time
Keep your shortfall funds in one account for simplicity
Transfer funds at least one business day early
Double-check account details before sending
Stay contactable during settlement week
These small steps ensure settlement runs smoothly.
Let’s chat.
If you’re preparing to buy and want help estimating your shortfall or understanding where your funds should be held, we can walk you through everything clearly. Let’s chat.
This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.