NEXT HOME BUYER
Congratulations on searching for your next home! Whether you are upsizing or downsizing your home, it’s an exciting time.
As you’ve purchased a property before you no doubt have a good idea what’s involved in the home loan process. However, transitioning between purchasing a new home and selling your current one may be new to you. You may need to navigate finances associated with two properties and home loans, or you could be turning your current home into an investment property and needing access to its’ equity to buy your new one.
- Access Equity
- Bridging Loans
- Deposit Guarantees
Funding a Deposit
If this is your second home purchase (or more!), than hopefully funding a deposit isn’t as difficult as it was the first time around.
There are a number of ways you can get together the required funds to purchase and settle on your next property. Whether you are keeping or selling your current property will also influence what method you choose.
Utilising equity – If you are keeping your current home and converting it to an investment property, you may be able to access the current equity you have accumulated and use this to fund or part fund your deposit.
Sale of your home – If you have already sold your current home you may have a healthy bank balance which will allow you to pay for your deposit and associated purchasing costs.
Deposit bond – A deposit bond (or guarantee) can be up to 10% of the purchase price and acts as a substitute for the cash deposit that is required when you sign the contract of sale. If you are currently waiting for your home to settle so that you can access the funds from the sale, or your money is tied up elsewhere e.g. the money is in shares, term deposits or other investments, you may be able to access a deposit bond to help you buy your new home. There is typically a flat fee paid to access a deposit bond. This cost is a percentage of the deposit amount being guaranteed. To work out how much your fee would be you can use this calculator from Deposit Power.
Savings or investments – And of course, you can tap into your savings or dilute investments to pay for the property.
When buying your next home you may want to look at other types of loans to what you had for your first one. This will depend on what your circumstances are and what type of property you are buying.
Here a couple of types that may be relevant, however there are other loan types so chat to your broker about what’s right for you. You can give us a call on 1300 135 456, use web chat or fill in our contact form and we’ll give you a call when it’s convenient to you.
A bridging loan enables you to purchase a property without having to sell your existing property first. If you’ve decided to build your next home, this could be a good option as it will allow you to live in your existing home until the new one is ready. This type of loan is typically for 6 months, or 12 months if your new property is being constructed. During the term of the loan you can make interest-only payments.
Principal and Interest Loan
This is the most common loan type and is where your repayments are divided into two portions. The first part of the payment goes towards paying the interest that has accrued during the month, anything left over comes off the principal or original amount you borrowed from the lender.
Ask a Broker
As you start looking at what finance is required for your next home, it’s a good idea to think about what you need and chat to your broker as early as possible in the process. Here are some questions that may be relevant to ask.
- Do I need to refinance my existing loan to release equity for a deposit?
- Can I stay with my existing lender?
- Can you arrange a deposit guarantee/bond?
- What do I do if the settlement dates (sale & purchase) don’t coincide?
- Do you have access to bridging finance?
- Can my existing lender do bridging finance?
- What type of loan is right for me?
- I need a construction loan, how does this work?
- What features should I include in my loan?
- Can I consolidate debt with this loan?
- What are the costs associated with a new purchase?
- Will I need Lenders Mortgage Insurance (LMI)?
Equally there are some questions you should ask yourself before chatting to your broker that will help to guide finding the right home loan for you. Your broker will want to know the following:
- Have you already found your new home or still looking?
- How are you going to fund the deposit and other costs of your new home purchase?
- If your loan size increases can you afford it?
- Will the loan be in a single name or joint names?
- When do you need the money by?
- Are you keeping your existing property and renting it out?
- Have you thought about renovating your current home vs. buying a new one?
- Do you need to consolidate some debt with this loan?
- Will the new home be ready to move in or will you need to spend money on it first?
- Will you need additional funds?
- Are you building your next home? If so are you doing this as an owner builder or using a licensed contractor?
Bridging Loan – So, you have just found or bought your dream house but haven’t sold your current one yet! Unless you sell your current home quickly, you may need a bridging loan. This is where a lender will cover the interval between the two transactions while you wait for your property to be sold.
We look forward to discussing your home loan needs soon.
We look forward to updating you with home loan news.