So you are rapidly outgrowing your home and you are thinking about upsizing to something “not so squeezy”. But where to begin? There are so many questions and moving parts. Here are some genuinely helpful steps to transition in mortgage services:
Upsizing the family home is akin to an Olympic gymnastic routine – complex with many moving parts to synchronize so that you can stick the landing rather than face planting.
Adding to the complexity, this is likely only the second time that you have bought a home so you are trying to land triple somersaults having barely mastered a forward roll.
So to help you on your way, here are the 7 key steps to make the move from your current home to a new one as straightforward as possible.
Tip 1: Be a Scout (Be Prepared & Know Your Numbers)
While the goal is to move to a new home that better suits your lifestyle (current and emerging) and the focus for most people is on what that house looks like, mastering your numbers is the most important part of successfully upsizing.
There are various numbers you need and the list below might hit all the important ones but is certainly not exhaustive;
- The value of your home – We are not talking about what price you might get if 5 people all fall in love with your home and bid like crazy at auction, or what an agent trying to win your business tells you its worth. We are talking about a realistic estimate that you will be able to achieve with a high degree of probability. You do not want to overvalue your house as it will mean you either end up needing a bigger loan (if that is even possible) or having to reduce your budget for the home you now need to buy.
- The costs to sell your home – This includes the cost of any fixes/repairs, staging, marketing, agents fees etc
- The amount you owe on your existing home loan – also think about any other debt you wish to clear at this time
- The monies you have to put towards the new purchase either from the sale of your existing home (subtract 2 + 3 from 1) or from elsewhere (savings, gift etc)
- The loan amount you can borrow (and are comfortable to borrow) – your mortgage broker can take you through your current borrowing capacity, how you might be able to improve that and discuss what size loan is really affordable for you
- The price range for your new home – Bringing all the above numbers together we get the price range for the new home
Tip 2: Have A Clear Brief For The New Home
To find the right home at the right price is never easy. For some, they simply cannot find the right home. For others they can find homes but just not at a price they can afford.
Before you start looking at, and falling in love with properties, you need to know your budget (step 1) and you need a clear brief of what you are looking for.
The planning and preparation you do here will help you narrow your search (saving you time as you rule out properties that do not fit your brief before you waste time going to inspect them) and give you a framework for decision making.
The starting point in creating your brief for a new home is a list of the “must haves”, and “nice to haves”. Ask yourself if the things listed in the “must haves” column are really deal breakers as the longer the list, the harder it will be to find the property that ticks all the boxes.
Here is an example:
| Must Have | Nice to Have |
| 3 bedrooms + study (4 bedrooms) | Period home |
| 1 bathroom + 2nd toilet | 2 bathrooms |
| 1 living room | 2 living areas (separated) |
| Does not need renovating | Lots of storage |
| Off-street parking | Garage |
| Outdoor area big enough for a trampoline and a place to sit & eat | Garden |
| Close to school or with convenient public transport to school | In the following suburbs/areas…. |
| Under $1m | Around $900K |
| Within 15 mins of parents/family |
Now you can go looking and see if you can get the house you want within your price range.
Some people spend years searching before they realise that it does not exist in their price range and search location. This is usually due to not having a well defined brief and understanding of the market
It is better to work out early on that you need to compromise on the home parameters, location or price range (or a combo of these things). It could save you years of searching in vain for something that does not exist.
If you find all of this hard to do, or overly time consuming, you should look to engage the services of a Buyer’s Agent. They will help you narrow the search, find suitable properties available in your price range and secure them for you. Almost without exception buyers agents save you time, effort and more than pay for themselves.
Tip 3: Now you have a map – plan the route
So do you sell your current home first and then go home hunting? Or do you buy a new one and then sell the current one? What if I buy/sell and then don’t manage to sell/buy before the first transaction settles? What is bridging finance? Can I get a bridging loan?
One of the biggest questions that Upsizers face is the order in which the selling of the existing home and the buying of a new home must happen. Whichever way you wish to proceed, you need to understand the inherent risk involved and manage these. The table below takes you through some of the main ones depending on which way you plan to proceed.
| Bridging Finance | Non Bridging Finance | |
|
Buy First and Sell Second Suits a family:
|
|
|
| Sell First and Buy Second
Suits a family that needs;
|
|
|
Bridging finance is only available from a small number of lenders and to qualify for it borrowers generally need strong equity in their existing home and a sufficiently low end debt that they can afford. Having a limited number of lenders means less borrowing options so it is harder to get finance if your scenario is otherwise does not neatly fit within mainstream lending policy (e.g. 1 year self employed).
Other matters to be aware of with bridging:
- You have a limited amount of time in which to achieve the sale of the existing home (6-12 months).
- With Bridging Finance lenders generally run calculations in ways that arrive at an end debt that is far higher than the borrower would anticipate. For example, lenders will likely assume that the borrower will sell for 10%+ less than the bank values the property and that it will take you 6-12 months to sell (meaning being to show you can afford to cover the interest on the peak debt for that length of time). So the end result is that the max borrowing capacity &/or purchase price for the new home is lower than it would be if bridging was not needed
If you don’t go down the bridging finance path, be aware that it is quite hard to get the two transactions to line up, not the least because you need to actually buy & sell in close proximity to each other. So borrowers need to expect that the sale will settle first (and if bridging is not possible then they cannot consider the purchase settling first) which means finding somewhere to live and place all your household goods till you can move into your new home.
Tip 4: Invite your travel partners
Buying a new home involves a team of people. Gather your team upfront. Don’t wait till you are halfway along to start looking for help. At very least you need a mortgage broker, a conveyancer (lawyer) and an agent to sell your place. Other team members you might want…property inspector, buyers advocate, vendors advocate.
Your conveyancer should be the same for the sale and purchase. It might seem obvious but too many people make this mistake. The less moving parts the better and the conveyancer ends us being across both transactions which is especially important if settlements coincide or are close to one another.
Tip 5: Have A Deposit Ready
Typically you need to pay a deposit equal to 10% of the purchase price. Do you have this available and ready to go? If you don’t then you need to know up front and plan accordingly.
Other options: Borrow funds from family until your sale goes through, negotiate for a 5% deposit, see if a Deposit Bond would be accepted. In the absence of being able to provide an acceptable deposit that will likely dictate selling before buying.
Tip 6: Be Finance Ready
Of course I would say this! But seriously, before you get neck deep in buying/selling homes you want to know that you can get the finance you need and that the plans you have in your head are ones that banks will assist with.
Consulting a mortgage broker, like Hatch, will allow you to know if you are on the right path and getting an actual pre-approval will give you certainty that you can go ahead (and how you must proceed).
At Hatch we will work with you to set the plan and see it through and know plenty of good people who can help you to achieve your goal including real estate agents, conveyancers, tradies etc
Tip 7: Get Your Home Ready For Sale
Getting a home ready for sale can take time. There are things you may need to repair, gardens to tidy up/beautify, improvements to make, decluttering, staging, appointing an agent etc.
Put together your list and get to work on it even if you plan to buy first and that hasn’t happened yet. Everything takes time! A real estate agent can be a useful adviser on where you should focus your efforts when selling (and where not to waste time or money).
Do this work as early as possible (even if it is just getting quotes and knowing who you will use) when the time comes.
The quicker you can get your property to market the more time you will have to focus on getting the price you want and/or reducing the time you need to have bridging finance.
If you are considering moving to the next home in 2024 or have already made that decision, then do not hesitate to call Hatch today and let us help you move on up!
