Whether you’re upsizing, downsizing or just moving to a house in a new location, your situation has probably changed since you last bought.
Here’s a refresher on some of the finance options available when you’re purchasing your next house and a few other key considerations.
The straightforward approach: Sell your current house to pay for the second
If you’re not planning to keep your property as an investment, one way to keep the transition as straightforward as possible is to sell your existing dwelling before buying the next.
- Know how much capital you have for your new purchase
- More time to shop around with less stress
- Improves your borrowing power and how you appear to lenders, perhaps netting you a more competitive interest rate
- May need to make interim living arrangements, renting or living with family
- Unpredictable house prices could mean an increase at any time, especially in more affordable regional areas, leaving you paying more for less
Plan B: Consider a bridging loan
A bridging loan gives you access to funds to buy your next property before you’ve sold your current one, which isn’t always an option.
The lender adds the value of your new home to your existing mortgage, then subtracts the likely sale price of your existing property. You’ll need a property valuation for each property.
Typically, you pay interest-only on the entire loan amount until the first property has sold and the principal is repaid in full. Bridging loans are sometimes structured so you only make interest repayments on the loan until settlement, capitalising the interest due on the rest of the loan. Either way, once you have sold your existing property, the loan reverts to an ordinary home loan.
Should I buy first and then sell?
- If you can afford to manage two home loans at the same time, or if the bridging loan is an option, then this may be less disruptive and give you more time and flexibility to find the ideal place.
- If building a new house, then this option allows you to stay in your existing property until your new house is ready.
- Save money on rent and moving costs by knowing exactly where you’re going when you’re going to move.
- Must service and manage two loans at the same time, reducing borrowing capacity
- The longer it takes to sell your existing house, the more interest you’ll pay
- You need at least 20% of the total value of both properties (either in cash or equity) to qualify for a bridging loan
Build your property portfolio: Consider investing
Do you really need to sell your existing property? With Australian dwelling values continuing to see record growth, now might be the time to consider growing your wealth through investing.
Should I invest?
- By holding on to your first property and renting it out, you may be able to generate a reliable secondary income
- You may be able to continue to leverage the investment meaning you can purchase more with less
- It is a tangible asset you can see and touch, which can create comfort seeing your stable investment
- The interest on an investment home loan may be tax deductible
- You may have period where you do not have rental income which means covers costs for the property
- Managing tenants isn’t always easy
- There could be ongoing costs with maintenance
Whatever your circumstances or situation, we’d be happy to help you set up the most suitable plan to achieve your financial and property-buying goals. Get in touch with us today!