Buying a Property

Your Guide to Financing Your Next Home

Whether you’re upgrading to a larger home or downsizing to something more manageable, buying a new property while already owning one brings unique considerations. From financial planning and loan options to navigating the property market, each step requires careful thought. At Natloans, we’re here to help simplify this process so that you can make your move with confidence.

Financing Your New Home: The Basics

Securing financing for a new home while owning an existing property introduces some specific financial considerations. Understanding the process can help make your transition smoother.

1. Application and Pre-Approval

Start with a pre-approval application. Your lender will assess your income, expenses, assets, and credit score. With pre-approval, you’ll get an estimate of the amount you can borrow, which sets a clear budget for your new property search. If you’re upgrading to a larger home, this step is crucial for understanding your borrowing capacity.

2. Choosing the Right Loan Type

You have several loan types to choose from, each offering different benefits depending on your goals and financial situation:

• Fixed-Rate Loans: Provide consistent monthly payments, making it easier to budget. However, you won’t benefit from lower payments if interest rates drop.
• Variable-Rate Loans: Rates fluctuate based on the market, potentially saving you money if rates decrease, but increasing your monthly payments if rates rise.
• Split Loans: A mix of fixed and variable rates, giving you stability with flexibility.

Selecting the right loan type is essential, especially if you’re balancing payments on your current property while planning for your new one.

3. Loan Terms and Interest Rates

Your loan term (typically 15, 20, or 30 years) and interest rate impact monthly repayments and overall loan cost. Longer terms mean lower monthly payments but higher overall interest. Natloans can help you assess these factors to ensure your payments fit within your budget, whether you’re moving up or down in property size.

4. Down Payment and Loan-to-Value Ratio (LVR)

Most lenders require a deposit, usually around 10-20% of the property’s value. If your deposit is below 20%, a higher LVR may necessitate Lenders Mortgage Insurance (LMI).

Additionally, if you have equity in your current home, you may be able to use it as part of your down payment, reducing the need for additional cash.

5. Settlement Process

Once your loan is approved, you’ll sign a contract with the seller, and a settlement date will be set. On this date, your lender will transfer the loan funds, and ownership of the new property transfers to you. Timing settlement with the sale of your current property is important to ensure a smooth transition.

Additional Costs in Financing

When buying a new home, be prepared for costs beyond the purchase price:

• Stamp Duty: A government tax based on the property’s price or market value, which
  varies by state.
• Lenders Mortgage Insurance (LMI): Required if your deposit is less than 20% of the property’s value.
• Additional Fees: These can include loan application fees, property valuations, and legal fees. Natloans provides clear information on all costs to help you budget effectively.

Considerations for Those Upgrading or Downsizing

When purchasing a new home while owning an existing one, several important factors can influence your financial plans and lifestyle.

1. Borrowing Power and Changeover Costs

Determine your borrowing power early on, especially if you’re upgrading to a more
expensive property. Consider the “changeover costs” that come with buying and selling, such as agent fees, legal costs, and moving expenses.

2. Simultaneous Settlement vs. Bridging Finance

Some buyers arrange a simultaneous settlement, where the sale of their current home coincides with the purchase of the new one. However, this timing doesn’t always align, and bridging finance may be necessary to cover the period between buying and selling.

Bridging finance is a temporary loan that helps you purchase the new property before your current home sells. Natloans can guide you on which option best suits your situation.

3. Using Equity for a Deposit

If you’ve built up equity in your current property, you may be able to use it as part of your deposit for the new home. This can reduce the need for upfront cash, making it easier to afford the move. Natloans can help you assess your equity and see how it can be leveraged for your next purchase.

Key Factors When Buying Your Next Home

1. Location

As with any property purchase, location matters. Think about the convenience of proximity to work, family, schools, and amenities. If you’re downsizing, consider low-maintenance properties near essential services. For those upgrading, look at future growth potential, as it can impact long-term property value.

2. Property Type and Condition

Choose a property type that suits your current and future needs. A house may provide more space if you’re upgrading, while a townhouse or apartment can simplify upkeep if you’re downsizing. Assess the property’s condition carefully, and note that older homes may require maintenance or renovations, which could add to your budget.

3. Budget and Affordability

Beyond the deposit, factor in monthly mortgage payments, maintenance costs, and any potential renovations. Use a home loan calculator to get an estimate based on your income, expenses, and equity. Natloans can provide budgeting assistance to ensure you’re financially comfortable with the purchase.

4. Long-Term Goals

Think about how this new property fits into your long-term plans. Will it serve your needs if your family expands, or does it simplify your lifestyle if you’re downsizing? Making sure the property aligns with your goals will save you the expense of needing to move again in the near future.

Natloans: Helping You with Every Step of Your Move

Buying a new home while owning an existing one can feel complex, but Natloans makes it manageable. Our team of mortgage brokers offers personalized support, guiding you from pre-approval to settlement and even helping you understand bridging finance and equity options.

Ready to make your next move? Contact Natloans today for expert advice and tailored loan options that make upgrading or downsizing a smooth, rewarding experience.