The Mortgage Brokers Guide on How to Upsize into a Bigger House (Without all the stress and effort)
Recently a few clients got in touch, basically asking the same question. They’d like to move to a bigger house and they wanted to know what the smoothest path was from a financing perspective. There are two paths forward:
Sell first and settle the sale before the purchase settlement or simultaneously
You’ll know how much money you have to spend on your new home, and you won’t have to pay off two home loans.
It is always prudent to have an unconditional contract of sale on the property you are selling before signing a contract to purchase your next home. It is highly risky to purchase another home before selling your current home unless you have sufficient income to service both loans or you have approval for a bridging loan.
However, if you’ve already sold and don’t find a suitable house to buy before settlement, you may be faced with even more costs:
- paying rent – you’ll need to live somewhere!
- additional removalist fees for moving twice
- additional utility connection costs
- storage costs
When you sell your current property it may be wise to place a longer settlement timeframe in the contract to allow you sufficient time to purchase another home. For example, in NSW the standard settlement period is 6 weeks but you may want to consider having a 12 week settlement.
When it works you can usually line up the settlements of both the sale and purchase to happen simultaneously. You may even be able to settle your sale first and rent the home back of the new owner for a short period of time until your purchased property settles. This will obviously depend on whether the purchaser wishes to occupy your old home.
The downside to having a longer settlement period in the contract is that it may turn away some potential purchasers who don’t wish to wait that long to take ownership of the property.
You can obtain pre-approval to purchase a new home subject to the condition that you sell your current home and have a signed contract of sale confirming the sale.
Buy first and sell your current home later
As mentioned above, this is a highly risk practice unless you can service both loans or you qualify for a bridging loan. There’s no knowing when you’ll sell your house, so how long you’ll make double loan repayments is uncertain.
You can try to negotiate with the vendor of the property you purchase for an extended settlement period, say 3 months or more. This will allow more time to sell your current property and reduce the time you will be servicing 2 loans or a bridging loan. Even with a long settlement, this would only be wise if you know you can complete the purchase even if you don’t sell your current home.
Please note that you need quite a lot of equity in the home you are selling to qualify for a bridging loan. There are only a handful of lenders that offer bridging loans and they generally add in all sorts of buffers to account for the worst-case scenarios which means a lot of equity is required. So a bridging loan may not be an option for everyone.
If you qualify for a bridging loan the lender will generally give you up to 6 months to sell your current property after purchasing your new property.
If you want to know how much you can afford when you upgrade your home, then call 1300 661 211