Before you buy
When you’re considering buying a new home or upgrading to a different/better property, there are a few steps you need to take to ensure you’re ready and capable of the additional financial obligations.
Go Over Your Finances
Do a detailed review of your finances and gain a deep understanding of your Income and outgoings, to make sure increasing your home loan won’t cause financial stress. A lot of people resist reviewing their living expenses – afraid of what they might find. But if you’re increasing your loan you’ll need to remember you’re monthly living expenses will increase and you need to take into account other costs of upgrading your home, including rates ,insurances, water, electricity. It’s important to be sure you can afford these increases.
Be Aware of Market Conditions
Is the market in growth or decline? What are experts predicting about the state of the market? Be aware of trends and possible risks before you take on additional financial responsibilities on a new property.
Understand the Equity in Your Current Home
Get expert advice on the value of your current home, and understand the equity you have available for upgrading to a new home. Don’t rely on your best guess –it’s worth taking the time to get a property valuation, or to access property reports available. Our team can help you understand your current equity and borrowing potential.
When it comes to upgrading your home, there are a few important things to consider:
Buy first or sell first?
One of the first (and biggest) decisions is whether to buy your new home first, or sell your current home before committing to a new property. There are benefits and risks either way. But most importantly, are you in a position financially to keep your property and convert it to an investment?
If you sell first:
- You’ll know your budget for your next home, narrowing the search and giving you more confidence when it comes to making an offer.
- You won’t face a period of paying off two mortgages.
- But you’ll need to find somewhere to live in the interim – which can come with significant costs including rent or storage, utility connection costs on your interim home as well as the new home plus the costs of moving twice.
If you buy first:
- You might need to take out a bridging loan, meaning you face repayments on both homes for a period of time
- There will be a period of uncertainty, not knowing when your original home will sell. It might take longer than expected, which can put stress on the sale and you may risk accepting a less optimal offer to release the pressure.
- You may overestimate the sale price of your current home, and find yourself with a shortfall.
Extended settlement
The most common settlement period is 4-6 weeks, however you can negotiate an extended settlement on either side of your upgrade. If you agree on an extended settlement with the buyer of your current home, it can give you time to find a new property before the settlement date (though it still leaves a limited time to find the perfect home).
If you negotiate an extended settlement on your new property, it can give you time to sell your original home before settlement date.
New property contract conditional on sale of your current home
When you sign the contract for your new home, you could make it conditional on the sale of your current home. However in a competitive housing market, many sellers are hesitant to agree to such a condition, and may accept another offer over yours, causing you to miss out on the property.
Bridging Loans
Bridging Loans (link to Bridging Loans section of Types of Home Loan Page) are a common option, providing the funds to buy your new property before you have sold your original property. These are usually interest-only loans, however you are still responsible for paying two mortgages at the same time.
Loan Portability/ Substitute Of Security
Some lenders give you the opportunity to transfer your current loan to the new property – removing the need to refinance. Speak to our mortgage specialists to see if that option is available to you, and an appropriate option for your circumstances.
Refinancing
When you’re buying a new home, it’s an ideal opportunity to refinance (link to refinancing page) and look for a better loan product that suits your new circumstances.
Upgrading your home is an exciting step, and our team are available to help you understand your borrowing potential and take first steps to buying your next home.