You’re starting to feel you’ve outgrown your current home. You have started to look into options for something bigger. But you have questions…
Can I buy something new and still keep my current home?
Do I need to sell first before I can buy another property?
How does the financing – and timing of it all – work?
Whilst the answers to these questions will entirely depend on your personal financial situation, here are a few things to think about.
Can I buy something new and retain my current property?
This can be a good option if your financial position allows you to cover the proposed repayments on two mortgages, taking into account the rent you will receive from renting one of the properties. Often buyers will consider this option if they’re planning to keep the new property as an investment for a few years, before they eventually move in.
This strategy can work out if you’ve built up equity in your current home because you can use this equity to help secure the new loan for your purchase. This helps to reduce the cash contribution required for a new purchase and also helps to avoid/minimise lenders mortgage insurance costs. Providing we can demonstrate your income level is sufficient to cover the repayments on the new loan.
Buying a second property to rent out now, can be good strategy if you know you’ll need a bigger house soon, but not quite bursting at the seams just yet. It allows you to secure your future home now (at today’s prices), and in the meantime potentially secure some tax benefits whilst you rent out the property initially.
It can also help to avoid the time pressures to find a bigger/better property straight away, because you don’t have to be out of your current home by a certain date.
When you (eventually) move in to the bigger home, you may decide to either a) sell your current home or b) turn that property into an investment.
If you can manage it, buying your ‘upgrader home’ before you need it can be a good option to explore, because it typically means you’re also not buying and selling property in the same market.
Do I need to sell before I can buy?
If you can’t quite reach the price point you want by retaining your current home – or renting out your new property seems like too much of a headache!- you may want to sell your current home before buying something else.
Given current interest rates, the higher cost of living and tightening servicing metrics, it’s become challenging for many borrowers to reach their desired/target purchase price. Many borrowers need to sell before they can buy. This effectively converts the built up equity into cash, provides a significant cash contribution towards the new purchase and reduces the loan amount required to reach their ideal price point.
The timing logistics will depend on your financial situation, but often look something like this:
- Calculate the sale proceeds expected from selling your home
- Determine your purchasing power, assuming your current home is sold
- Prepare your home for sale and put it on the market
- Accept an offer for your current home and exchange the contract
- Officially start house hunting for your new purchase (with a pre-approval in place)
- Secure a new home and exchange on the contract for your purchase (ideally after formal finance has been issued)
- Line up the settlements, so your sale settlement happens prior to or simultaneously with your purchase settlement
What happens if I can’t sell my home or I don’t get the price I want for it?
If you don’t secure the price you want for your current home, it will reduce the cash you have available for your new purchase. Depending on your financial position, this may mean you need to contribute some additional cash from any savings towards the new purchase. Alternatively, the max price for your new purchase will need to be lowered.
What happens if I sell my home and then can’t find one to purchase?
We know that there is still a lot of demand for properties and securing one you like – at the right price! – isn’t particularly easy. However, once you’ve committed to selling your home, the time is ticking for you to buy something. Because once settlement rolls around, it’s highly likely the new owner will want to move in.
If you’re really struggling to find new home, there’s always the option to move into a rental if you need to. Whilst not Plan A for a number of reasons, it can take the pressure off for a bit if you’re starting to get worried about having nowhere to live.
What happens if I settle my sale a week before my purchase. Where do I live in the meantime?
When accepting an offer for your current home and placing an offer for your purchase, you will need to think about the timing of the settlements. If you need funds from your sale to buy your new home, then your sale will obviously need to settle first.
But doesn’t that also mean you’ll have nowhere to live until your purchase settles?
Not necessarily.
You might have the option to rent your old home from the new owner for a week or two, just until your new home settles. Alternatively, if your new home is vacant, you may be able to get early access to this property – and rent the new home from it’s current owner until it officially becomes yours in a week’s time.
If you need to stay in your current home for a bit longer after settlement, or obtain early occupancy for your new home, your solicitor will liaise/negotiate with the buyer/ vendor’s to see if an amenable agreement can be reached.
What happens to my purchase if settlement of my sale is delayed?
If your purchase is dependent on cash from your sale, then a delay with the sale could impact the timing of the purchase. Again, it really depends on the specifics of your personal situation.
Unfortunately, sometimes settlements don’t occur on the day they’re meant to. In many cases, it’s because the seller’s financier hasn’t prepared the existing loan for discharge on time.
So as someone selling their home, you need to ensure you’ve done everything you can on your side to ensure settlement if effected on time.
As a precaution, many homeowners like to schedule the sale settlement for a few days before the expected purchase settlement. That way, if an unforeseen issue arises and settlement doesn’t occur on the day it’s meant to, you still have a few days to get it settled before the expected purchase settlement.
If you want to have a chat to us about about your own situation to find out what might be possible for you, we’d love to help!
Just provide some preliminary details here and we’ll be in touch.
