3 things to consider before buying a new home
Buying a property can be an overwhelming task for many people. There are a number of factors you'll need to consider before taking out a home mortgage to secure your home.
With careful research and preparation, it's possible to find a home that will suit your requirements for many years. However, it's likely that over time, your needs will change and you will eventually outgrow your current home.
Whether you're starting a new family, your children are moving out or you'd like to switch your apartment for a house with a lush garden, consider the following before purchasing a new property.
If you're financially savvy and have considerable savings, you may want to weigh up the possibility of gearing.
When you borrow money to invest, this is called gearing. The less-risky strategy involves keeping your costs below your level of income (such as rental income).
If you're living in an apartment or unit and want to move into a larger home, have you considered whether you can afford both properties?
You could use the equity you've built up in your existing property to stump up a deposit for your new home. Then, you can find tenants for your old property and use the rental income to pay off the mortgage.
You'll want to have savings at hand to cover any extra expenses, and you might even utilise a property management service to meet all of your legal obligations as a new landlord.
Evaluate the property market - ask yourself whether your current house has risen in capital value recently and if this trend will continue. Be sure to consult a financial adviser if you're unsure about borrowing to invest.
Bridging loans and portability
If you choose to sell your old home to buy a new one, is it in your best interests to stick with your existing home mortgage, or refinance instead?
How you answer this question will depend on whether you buy a second home before or after you sell your existing property.
If you find yourself in a position where you are buying a second property before selling your first, or your new home's settlement date is after that of the property you're selling, a bridging loan may be right for you.
Bridging loans tend to be taken out for short periods. Both properties act as securities on the debt until the second sale is confirmed.
You may have to demonstrate that you can pay off both loans. A stable income is a good way to show this - just make sure you can still cover your everyday expenses. Some lenders may require you to sell your existing home within a certain timeframe, so keep this in mind.
This may be a good option if you've found your new dream home but don't want to accept the first offer on your existing property - especially if it's lower than the market rate!
Another option is a portable loan. When you sell your existing property, you can transfer your home mortgage to your new home with this kind of loan.
If you have a portable loan, you may avoid setup costs and cancellation fees you'd otherwise incur with a new loan. It's best to check with your lender that your mortgage has this feature when you first sign up.
Whether you're buying a more expensive property or something cheaper, portability is a great feature to minimise extra costs and take the hassle out of moving house. Considering home loan periods range from 15 to 30 years, it's quite possible that you'll need to upsize or downsize in this time, so loan portability is often a very useful feature.
If you refinance your home loan, you could use the equity in your current home for your new property.
A valuation is a critical part of your home loan application. When a borrower lends money for the purchase of a home, the property becomes the security on the debt.
Therefore it's important that this security has been correctly valued - a task for a licensed and independent valuer.
The valuer will consider the building's condition and layout, any structural faults, location and planning restrictions.
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