Ever thought about picking up and moving to a new home? Maybe the family is growing (or teenagers are taking over the lounge), you want to be closer to that school or in that perfect location, or you’re keen to build your new home just the way you want it.
Whatever your reason for dreaming these aspirational dreams, you may still be unsure how to actually go about it, or whether you have enough equity in your current home to allow yourself to get excited. If so, this article has been written for you.
Can’t I just rent out my old house?
If you haven’t noticed, the property market has changed a lot in recent times. The tried and true method for moving on up the property ladder used to be buying a new home and renting out your old one, taking your first step into rental properties. This worked well before the loan-to-value ratios for ‘investors’ required a crippling 40% equity – a milestone that can take a long time for the average Jack and Jill to reach.
In today’s market, people who were keen to take a rental property might instead consider selling their existing home and buying a new one in an up-coming area, holding out for capital gain in the long run and saving that rental property idea for when the market restrictions ease.
Buying and selling your home without drama
There are a few ways you can do this:
- Sell your existing home before you buy or build the new one. This can help you avoid paying two mortgages at once, but be sure to plan it carefully so that you have a plan if you can’t find a new place or move in right away. Some mortgages can be portable too so you might be able to carry it over – but we can help with all that.
- Buy or build the new place and then work on selling as quickly as possible thereafter. To help with the added burden of paying two mortgages you have options such as ‘bridging finance’ to help bridge the gap.
In both cases there are a couple of recommended must-do’s:
- Make sure you get mortgage advice before you make decisions or sign anything, so that you can be sure that you and your family are making the right moves.
- Get a decent real estate agent – we can also suggest the names of some reliable local agents if you need help finding a good one.
Do I have enough equity to buy the home I want?
Excellent question! First start with how much your new home is likely to cost you. Then, to work out the equity in your existing home, simply calculate:
Current home value – Amount owing to bank – Selling costs = Equity in your current home
You can then calculate how much deposit is required in this here – how much deposit do I need to buy a house?
Interestingly though, equity is not the be-all and end-all that it can be in a first-home buyers’ situation.
In the case of an existing home owner, the banks’ decision to lend you more will be greatly impacted by your income, in other words your ability to service a larger loan with larger repayments. If your income has changed for the better since you originally bought your current home, you may have a good chance of being able to borrow more. Sorry – there is no hard and fast rule!
From here you can talk to a Mortgage Adviser about your specific situation, what your goals are and look at the options that are available to you.
Like to find out if you are in the position to make a move?
Send me an enquiry or give me a call and we’ll have a chat in confidence.
Our standard Mortgage Advisory service is provided free of charge as we are remunerated (paid) by the banks, but we also provide specialised services and advice for non-conforming, credit-impaired, business and complex cases. After our free initial no-obligation consultation, we will advise you if a fee may need to be charged before we undertake any work. In many cases we may find a simple solution for you.
Photo by roam in color on Unsplash
