5 things to know when buying another house.
If you’re an existing home owner looking to buy a new home, here’s some tips to help you avoid unexpected challenges that may arise.
We asked real estate news readers to tell us what hurdles they encountered when buying another house (or third, or fourth… you get the picture) home.
We then put your questions to a Westpac finance expert to help provide some expertise on financing and buying another house . Allow us to demystify some of your burning questions:
1. Getting started
In any project, starting out can be the biggest hurdle of all. According to Lali Wiratunga, financial expert at Westpac’s Davidson Institute, the first thing you need is a good understanding of your financial situation to figure out how much you could spend on your next property.
How do you get that ballpark figure? Start a conversation with your lender.
“A good place to start when thinking about your next home is to consider your financial position – how much equity have you built up in your current home, what balance is remaining on your loan and any savings you might have to help determine your borrowing power” Wiratunga says. “Speaking to your lender is a good first step, as well as taking advantage of free online tools and calculators to get an initial idea.”
Once you have an idea of your budget, now you can start to think about the exciting things; what you want most from your new home, potential locations, what type of property you’ll be searching for and the key features you want in the property.
2. Understanding equity
You’ll hear this term thrown around a lot in the home buying journey. It helps to know how you could use it, which in turn could help you buy your next home.
What is equity?
Home equity is the difference between the current market value of your home and how much you have left to pay on your home loan. It’s essentially what you would have left over if you sold your house today, and paid off your outstanding loan in full.
Home equity also aligns to market performance, which means you could see positive growth when the market is growing, as we’ve seen recently in some capital cities. It’s important to remember that similarly if house prices were to decrease, your available equity might as well.
Most lenders won’t allow you to access, or borrow against, your total equity though – they’ll look at what’s called ‘usable equity’ which is calculated as 80% of the current market value of your home, minus your outstanding loan. This is important to keep in mind if you’re wanting to keep your current home, and use your equity to buy another property, or renovate.
How does equity help?
Buying your first home depends largely upon your personal savings and the deposit you can afford to save up. However, if you decide it’s time to sell and move to your next home, you may have built up a bit of equity in your current property, that could go part of the way towards the deposit on your next home. This means you may not need to save as much cash up front.
Your home equity, together with your savings, could make up – or hopefully exceed – the value of a 20% home deposit. (Anything less than 20% may incur additional costs such as Lender’s Mortgage Insurance.)
Everyone’s financial situation is different so it’s always a good idea to consult with an expert to discuss your specific situation and needs.
3. Buy before you sell or sell before you buy?
Lining up your buying and selling dates can sometimes be challenging. This gives way to the age-old question: do I sell first and buy later, or do I buy first and sell after? Wiratunga says there are pros and cons to each.
“There’s no right or wrong method to whether you buy or sell first,” he begins.
“Selling your property first can be helpful as it gives you a good idea of exactly how much money you have available for your next purchase. However, there is a risk that house prices could rise in the time it takes to find and secure your next home. Ideally, you want to try to buy and sell in the same market for more certainty.
4. Finding the right property
When it comes to nabbing a property, “patience is an asset”, according to Wiratunga.
“Take time to really think about your strategy and what you’re looking for in your next property. We know competition with other buyers is a real challenge, but finding the right home does take time and it’s important not to rush into anything,” he shares.
Buying a home may feel like a rollercoaster ride but as much as possible, try to leave your emotion at the door and think rationally about your home as an investment too.
It’s also important to try and keep an open mind, and not get too set on one particular property or area. Many Australians who can work from home are now broadening their horizons and expanding their property search to areas they hadn’t previously considered.
If the stars aren’t aligning from a buying and selling perspective, you could look at renovating your current property.
“Consider renovating your current home,” Wiratunga says. “The renovation may help you achieve a higher price in future by adding value to your home, while opening up the space you need in the short to medium-term.
If you’re looking at one specific area, consider broadening your search to the surrounding suburbs.
5. Finding the right mortgage
When searching for a home loan, it’s important to do your homework. Even as a current homeowner, it’s a good idea to spend some time researching the different options that might be available for you in line with your personal circumstances and buying strategy.
“Your bank or home loan expert can help unpack any complexities and answer questions about your mortgage options. This might include a discussion around the mortgage structure and features that will be most beneficial for you,” Wiratunga says.
Westpac has a variety of tools and resources that can help make each stage of your next-home buying journey simpler.
