Selling and buying a home is a process every homeowner by now has experienced. Regardless of your reason to move, it is a very tiring and stressful process. Not only does it require ample paperwork, but also proper research and knowledge about the housing market are very necessary. The only people who get through this phase are those who have ample market knowledge or who get professional help. That said, through this guide, you will also be able to get yourself out of this tough phase.
Quick Read:
- Buy To Sell or Sell to Buy
- Buying a House First
- Selling Your House First
- Buyer’s or Seller’s Market
- Mortgages
- Payment
- Rent Or Sell?
- Some Tips to Help You Out
Buy To Sell or Sell to Buy
First, you must understand the reason why you are selling your house and buying a new one. Is it because of your mortgage, Maybe it is because of your neighbors. Whatever the reason may be you now have to find a new house, easier said than done. First, see what other people look for while buying and selling a house:
- To buy a house that is insured and affordable
- To sell the house quickly and profitably
- To go through the abovementioned processes with the least possible resistance and stress
Now before you set out to buy a new house or put yours out for selling, some renovation is necessary. You cannot simply sell the house in the condition that it is in right now. Instead, you will have to improve your house. Renovating your house will attract possible customers, and you can increase the overall price of your property.
Second, home improvements increase your overall equity of the house. Therefore, in the off chance you don’t find a house, payments made for improvements will add to your equity. Another thing that you can do is carefully evaluate your mortgage damages. You should also consider fishing for those helpful mortgage-breaking tips that you can find on yourmortgage.com.au.
Deciding between buying a new house and selling your house first can be quite confusing. The easier thing would be first to buy a new property and immediately start the shifting process. The shifting process is not that simple as it involves many problems that you certainly would like to avoid. It can take a lot of your time and effort.
Therefore, it is better if you start it as early as you can because that would help you adjust quickly to the new neighborhood. One important thing that might resist you to buy a house would definitely be your current financial status.
According to John Smith, CEO at Inspire Finance Group Ltd, this difficult decision is entirely dependent on the current buyer and seller’s market. He further explained that there are other factors involved as well, that can help buyers and sellers to make their minds up.
For instance, can the person afford a bendable short-term finance plan such as a bridging loan? Another common factor involved in this is whether the person possesses sufficient equity contained by his/her properties to take full advantage of the interest rates. It is important that you keep these factors in your mind when dealing with your properties.
In case you are in a seller’s market, John Smith has some expert advice that might help you out further. He said that buying a new house should preferably be your first option. That’s because you will probably look to sell your current house in a quick period. He also said that you should keep your personal feelings aside when making such an important conclusion. To think clearly, it is advisable that you view your property from a buyer’s point of view. Doing this will help you make a sensible and a beneficial decision for yourself.
If you are in a buyer’s market, your approach will be quite different from that of a seller’s market. According to John, selling your home should be the first priority. There are some reasons why you should take this crucial step. Firstly, you can avoid settling interest costs on two different loans, which is quite a scary situation. Secondly, you can save your equity present in your properties from being wasted.
John said that is possible to use short-term rent plans to slimmer down some costs, but this also has a downside to it. Using such schemes can lead to open house inspections so it would be better to rent out your most recent property. The overall conclusion according to John’s perspective is that you should sell first. You should ensure that the settlement date is extendable for you to look for a new house. He also said that you should not rush into making a decision. You should weigh in all options that can include some financial help from friends and family to make a rational decision.
Apart from this, it is also important that you keep a sharp eye on the property market. The property market can be highly unpredictable at times. Therefore, it is important for you to keep the buying and selling period as close as possible.
Lisa Montgomery, former head of marketing and consumer advocacy at Resi says that it is better to find a replacement first. She has warned about some uncomfortable scenarios that might occur if you decide to sell first. Lisa said that this would make it harder for you to adapt to the property market. It would be nearly impossible to get back in the same market-state, as it was when you sold your house.
Now that you know how you should be thinking, it is time to improvise and make a sensible judgment.
Here are two different scenarios for you to consider:
Buying a House First
Starting your move by initially buying a house has its own benefits. Its greatest benefit is that it removes the need for renting during the house-selling period. This is often a concern for large families or couples with young children or people with a lot of furniture. However, this is often an option for those who can afford to get a new house before selling their current house.
Moreover, as some people often find their dream house before selling their current house, it’s the only way of ensuring that you will get that house. This turns out to be a more favorable option for the rich as shown by some of its disadvantages:
- Payment: In the case where you are paying through bridging finance, you will have to pay the loan of both the properties. This can be difficult for you to pay and if the bank receives delayed payments, they might seize the property.
- Slow But Not Steady: The market moves in a very unpredictable fashion, and sometimes it can take longer for your property to sell. This can prove to be dangerous for those buyers who were dependant on the selling of their previous home.
- Sell to Buy: Due to the new house being bought and the old house not yet sold, there is a lot of pressure on the seller. This can lead to selling the old property at less than anticipated price, which can result in future financial problems.
Selling Your House First
Although this can be challenging for people with lower wages or those who aren’t generally well off, it is still a popular choice amongst numerous individuals. Many experts believe selling your house first is the most logical order to pursue the moving plans. Furthermore, they speak from experience as multiple cases where homeowners were driven out of their house because they couldn’t get their old house sold off. They ended up underestimating the property market, which can be affected b price hikes.
By selling your house first, you won’t depend on optimistic estimations and will know your exact budget. This way you are less likely to over-extend on your new house. While being the most favored option for experts and people alike, it has its fair share of disadvantages.
For starters, if you don’t find a new house during the time you have sold your house, you’ll have to rent or stay with friends and family. While this may not sound like a serious issue if it’s only for a little while, but that’s exactly the problem. Keep in mind that the market works in a very unpredictable manner, so if finding a house takes longer than anticipated this could turn out to be a serious an expensive issue.
Besides finding a temporary place to stay, the unpacking and packing efforts can at times be infuriating and rather costly. However, if you decide to keep most of your furniture in storage, this still cost you both financially and emotionally. A suitable alternative to this could be by staying at a hotel or a guesthouse. This, however, can prove to be quite heavy on your pockets. You might have to pay both the hotel charges plus other costs including storage costs.
What you can do to avoid large costs is that you can try to shorten the time-period between sale and purchase. Furthermore, if you possess a considerably large amount of equity, you can invest it and get a handsome return.
Here’s an example for you to understand the procedure:
When you have already paid about 20% of the buying cost of your currently owned property, you can get an acceptable return it. For instance, if you have paid about $80,000, you could get $4000, which is a decent amount. This is most likely to happen if the scenario exceeds a year and you have a cash management account. This account usually will give you a 5% of your investment before buying the property.
Getting a return like this might help you deal with the unpredictable property market. However, this return amount might not prove to be that useful in cases where there is a 10% hike. You can end up paying thousands of dollars more than you could’ve ever predicted to settle the price difference.
Buyer’s or Seller’s Market
Now that you know of these circumstances, you should also learn about the factors that influence it. Before buying or selling a house, you should always check to see if there is a buyer’s market or a seller’s market. A Buyer’s Market refers to when supply exceeds demand. In simple terms when there are more houses than there are buyers, this scenario qualifies as a buyer’s market.
A seller’s market is the opposite, in which there are more buyers than there are sellers. In a buyer’s market, the buyers determine the price, and in the seller’s market, the sellers determine the price. This makes the process of buying or selling more confusing as you have to ensure which market is currently in power.
While buying a house, it is best to go purchasing in a buyer’s market. In the buyer’s market, you can find desperate sellers who are willing to sell their house at a reasonable price. Moreover, sellers here will be more likely to accept your offer due to the competition in the market. This is, however, a double-edged sword; as if you are selling in a buyer’s market, you are accustomed to the customer’s prices. Due to there being a stiff competition, you are advised to sell in the seller’s market.
Sellers there grow a monopoly of sorts, and this mostly happens in well reputable districts or suburbs. With the monopoly mentioned above, sellers can make an outlandish offer, and if the customer wants it, they will have to pay. Again, these conditions apply to you as well if you are the customer, so it would be best to avoid these districts.
Nonetheless, in some cases, sellers can still hold a monopoly in a buyer’s market. An example of this would be Silicon Valley, A suburb of the richest people in America. Although there are mansions vacant there, Silicon Valley is famous for its outlandish property values making it a different market entirely.
Mortgages
Now to a more pressing issue, your mortgage plan. From the start of your decision to the point of selling your house, you have raised some red flags with your lender. While many mortgage plans offer a mortgage renewal or a new offer for changing houses other offers don’t. You will have to be careful when you shift as you might be in direct violation of your mortgage contract. There is not much to worry about, as there are other ways for you to move into your new house without violating your current contract. Beware; all these options can be costly depending on your situation.
1. Take It with You
The most feasible and most favored option by most people is that if it isn’t broken then don’t fix it. In the case that you are happy with your current lender then you may transfer the mortgage with you. Along with saving you time, it will save you the frustration of going through the entire mortgage process again.
While being incredibly convenient, this is also a very cost effective solution to your mortgage problem. Nevertheless, this also has its downsides. Many mortgages come with a set limit. This means that your new house will have to be the same amount of your existing house, so to upgrade you would need a bigger loan. In other words, you would need a new loan.
2. Talk to Your Lender
Generally, it’s very good to stay on good terms with your lender and contact them in the case there is something wrong. Talk to your lender about the offer that they are currently willing to give you. If you had a good experience with your current lender, but their offer seems unreasonable, you should negotiate with them. It’s not wise to lose a firm that has been lenient or has been on good terms with you. Furthermore, if you were getting excellent customer service with your current lender, there is no guarantee that you will receive the same customer service.
3. Leave It All Behind You
In the case, that all of the methods mentioned above fail, you will have to resort to finding a new lender. Now before you start comparing costs of these many, many mortgage plans understand your needs. If your needs are cost-effectiveness, then there are specific products for that, and if you want to remove your debt as quickly as possible, there are products for that as well.
The list goes on, so by understanding and looking for plans that reflect your needs, the daunting task of finding a new lender turns into an inconvenience. The only downside to this method is that you are back at square on struggling to find the right deal for you.
Payment
Finally, after searching for the right home, waiting for the right buyer and getting a good mortgage plan, you will now pay for your new home. Since you have made quite the effort in shifting, the payment method is quite straightforward. There are two ways for you to finance your mortgage
1) Bridging Finance
In the traditional sense, bridging loans are a bit similar to personal loans. Short-term loans are used to arrange the deposit for your new home. This could be secured or unsecured depending on your package. There are both long-term and short-term payment options that solely depend on your preference.
However, financial institutions have breathed new meaning into this word. Now you can use this to finance your entire property until you have paid them back or sold your house. Most lenders are familiar with this form of payment and genuinely accept it. In the case of a new lender, if you use bridge financing, the process might be a bit different.
The lenders can take on your current loans, which require you to pay your debt to them. If your existing loan is a ‘honeymoon’ or a fixed loan type, you might have to pay less when it comes to exit fees. Keep in mind that exit fee usually applies when you are changing your lender.
A major risk with taking this path is that you can take some time before your property sells at your desired price. In such cases, you might be even forced to make your mortgage settlements on the basis of two separate loans. There are many examples of cases where bridging financing turned out to be a huge failure for numerous individuals. The cases were usually of those individuals who observed unexpected delayed settlements. People who were unable to sell their homes in time also suffered some dire consequences as well.
Bridging Financing does not suit everyone. It is quite expensive and forces you to take some measures that can be a loss for you. For instance, you can be forced to sell your house for less than its original amount to settle the gap. This results in a larger debt amount and a less equity on hold, which is quite a setback. It is better to evaluate first to avoid such situations. Without bridging financing, you could have waited a bit more and sold your house for a golden price.
Despite many expert opinions, bridging financing might not be as attractive as it seems to be. It is crucial for you to be careful and look for other sensible options. The key is to find a solution that can easily close the gap between the sale and purchase of your property.
2) Deposit Bonds
Deposit bonds are an alternative to bridging finance and help you pay for the deposit when you don’t have the cash at hand. The companies selling the bonds will sign a contract with the realtor that you, the buyer, will pay back the deposit made by them. A general rule to understand in deposit bonds is that the required deposit has the same worth as the bond.
Here’s an example for you to understand:-
If the desired property costs about $200,000 with a customary deposit requirement of around 10%, a $20,000 bond should be used. This is because when it comes to the deposit bonds, you need to pay the deposit on the basis of the settlement of your desired property.
To keep the vendors happy, the bond providers usually promise them a guaranteed deposit. This is most likely to happen in cases where the buyer backed out of purchasing the property. The providers then go out after the buyer to get their deposits. This indicates that even if you decide not to buy the property, you are still required to pay the deposit. When property settlement takes place, the specified deposit bond is thought to be ineffective. In this, the purchaser will have to pay all the remaining dues that also include the deposit amount.
It is much better if you make use of deposit bonds when you have to make immediate deposit payments. The property and vendor’s details are not necessarily required to be fixed like the deposit bonds. A viable solution to this could be that you can attend numerous auctions and then change the details. In order to do this, you will first have to become a successful bidder.
In the case of deposit bonds, there are certain things that you should keep in mind. For instance, it is important to note that not all vendors accept deposit bonds. They usually prefer a cash deposit approach for deposit payments. Before going to an auction and bidding for the property, you will have to ensure that a deposit bond is applicable. If the bond issuer promises a guaranteed payment, this can be accepted.
The cost of a deposit bond is usually a minor one percent of the total deposit that is to be paid. It is easily accessible as you can get it within a day simply by fax or e-mail. You can also buy deposit bonds from real-estate agents and some specific lenders. They will probably charge the same as you can get it from other sources.
Rent Or Sell?
While looking at all the possibilities, you have to consider another one; will you sell your old house or rent it? Knowing best your current financial state only, you yourself can make this decision. If you have the resources to buy another house while keeping another house as a source of income put it up for rent. However, if you are dependent on the money that you will get after selling the house, then you don’t have many options other than selling your previous house.
You must also keep in consideration your current circumstances. If you are downsizing because of financial issues and harsh mortgage payments, then you will have to sell. On the other hand, if you are a family looking to upgrade, you must make sure that you get a plan that you can afford.
Here are some common situations that might help you in making a suitable judgment:
Situation 1 – A property owner possessing sufficient equity wants to move to a new house
Buying a good property is great but not when the owner is considering a tax-saving solution. Her situation requires her to renovate her property and giving it out on rent rather than selling it. This is because buying and selling at the same time can cost her a fortune. Furthermore, if her old property is in an area that will become profitable in the future, she can hold onto it and enjoy some valuable gains.
Situation 2 – An older couple decides to buy a new property and keep the current one as well
This can be quite favorable for the couple if they have enough funds to buy a new property. This is because as per the situation, they might be on the verge of retiring. Therefore, they can rent out their current property to make it a profitable source of income for themselves. However, it will be critical for them to make sure that they are able to make payments on their new mortgage plan. This needs careful evaluation if they decide to borrow for buying the new property.
Situation 3 – A growing family decides to purchase a bigger property
It will not be a bad decision if a young couple decides to buy a new property that is within their budget. If in case the couple keeps the old property as an investment source, they will need some proper tax knowledge. The better step to take could be to get regular updates on the real-estate market. If the property value increases, they can sell their property for a larger price and purchase their new house at a lower price.
Situation 4 – A property owner with mortgage repayment troubles looking for a downgrade
This is quite a sensitive case, and you have to be diligent while dealing with it. The first could be to get professional advice and then inform the lender about his situation. The owner might be able to increase the loan period by giving the house on rent and renting a property himself. It is important that the owner consider all the available options to make a final decision to resolve the case.
Some Tips to Help You Out
According to John Smith, there are certain things you should know before going all-out in the market. Here are some for you to know:-
- Don’t completely trust real estate agents as they can lie to you for their gains.
- Gather information about the area you intend to live in from local sources.
- Ask the local council for any plans on the chosen area.
- Ensure that a solicitor goes through the terms of your contract to avoid any irregularities.
- Try to negotiate with the real-estate agent by asking for complete property details.
- Ask the responsible authorities for regular property inspections on your chosen site.
- Try to make frequent visits to the property. This will help you notice many things that weren’t there before.
House hunting and selling can be quite exhausting and time-consuming. It consists of some recipes for instant headaches and stress such as mortgage plans and other technical terms. That said there are ways to go about it and many firms offer alternatives to ease the process. In conclusion, finding a new home while selling yours can be tricky to pull off and requires you to keep in mind many factors, no price is too high to pay for your future house.
