Buying your next home. How to move up the property ladder without a wobble.

When it’s time to buy another home, careful preparation helps you to get what you want with minimal stress. Here’s a refresher course for nailing the next chapter of your property journey.

Choose a buying and selling strategy.

Is it better to sell before you buy or vice versa? There are pros and cons associated with both strategies:

Selling before you buy

Selling your current home before you buy another gives you a clear picture of your financial position, so you’re less likely to buy a home you can’t really afford. The downside is the ticking clock. Once your sale goes unconditional, the pressure’s on to find a home you want and negotiate a settlement day that doesn’t leave you stranded. It’s always good to have a Plan B, like staying with family or renting short term, in case you end up with nowhere to live for a few weeks.

Buying before you sell

Buying before you sell ensures you get the home you want, but it comes with a couple of significant risks. You might not sell your home for a high-enough price and you might not sell it in time. If you decide to buy before you sell, bridging finance (see below) might be necessary for a few weeks. Alternatively, you could rent out your current house and wait until the market’s in better shape.

TIP: If you see a house that’s too good to let go, try to negotiate a longer settlement date. It will give you more time to sell your current house and hopefully align settlement dates.

Understanding bridging finance

Bridging finance is a temporary loan that helps out when you end up owning two homes for a short time. Sometimes there’s a gap between settlement dates, which can happen even if you sell before you buy. And sometimes you have to settle on a new house before you’ve sold the old one.?Read our detailed article about bridging finance.

Keeping your current home

If you decide to buy another home and rent out your existing home, you’re taking your first step onto the investment property ladder. Read our first-timer’s guide to investing in property.

Have a planning session.

Having selected your strategy – buy first or sell first – the way forward demands a planning session. It’s not unlike the planning you did to buy your first house, except the numbers are likely to be bigger. Here are the steps required for a solid plan:

See how much equity you have in your existing home

Equity is the difference between the amount of your home loan and what the house is worth in the current market. If you plan to sell before you buy, you’ll have an accurate figure to work with. If you’re going to buy before you sell, this figure will be a ballpark because you don’t know how much your current property will sell for. Your equity amount becomes your deposit on your next home. Keep in mind the expenses associated with selling, such as estate agent’s commission, marketing costs, lawyer fees and moving company costs.

Get a picture of your spending behaviour

What you think you spend each month might be different to what’s actually happening. To see the truth, consult your bank and credit card statements for the last six months, then use our?Budget Planner?to draw up a budget. While there could be scope to trim your spending, make sure you’re being realistic about outgoings.

Estimate how much you can borrow

Next step is to use your budget information to drive?our borrowing calculator.?After entering income and expenses information you’ll be able to see your borrowing power. The number is approximate; only a mortgage adviser or home lender can give you a definite number.

Calculate repayments

Now take your ballpark borrowing amount to the?repayment calculator,?to establish what your monthly or fortnightly repayments will be. The variables include the amount of your loan, loan type, loan term and interest rate.

Find an adviser and arrange a loan pre-approval.

Did you work with a mortgage broker/adviser when you bought your existing home? Or did you deal directly with a lender? It’s interesting to note that an increasing number of home buyers are choosing to work with an independent adviser to find the best home loan for their circumstances. It means you get a wider choice of lenders and solid advice that’s linked to your goals, like early repayment. Read our article about?preparing for a meeting with your mortgage adviser.

It’s wise to make contact with an adviser before you start hunting for a home – and definitely before you bid at auction or make an offer – so that you can arrange home loan pre-approval. Pre-approval is written acknowledgement that you can borrow an agreed amount, provided you meet certain conditions.

Getting pre-approval requires:

• proof of income (payslips or bank statements)
• a household budget (use our?Budget Planner)
• a list of debts (personal loans, credit cards, overdrafts)
• evidence of your deposit (an indication of equity in your existing home)
• two forms of identification (passport, driver license)
• proof of address (i.e. recent power bill)
• information about the type of property you want to buy, including price range

Obtaining a pre-approval can take anything from a couple of days to a week or more, so get onto it as soon as you can.

We can connect you to a trusted mortgage adviser (broker) in your region. Check out our Find a Broker page here