Buying your next home FAQs
Can I purchase my next home before I sell my existing home?
Yes – However there are pros and cons on whether to buy first or sell first. If you decide to buy first, you will need bridging finance before you purchase your next property.
You can borrow up to 80% of your peak debt (your current mortgage plus the purchase price of the new property).
Are there different types of bridging loans?
Yes – The structure of the finance will vary from lender to lender and often the interest rate can be higher. Before you enter a bridging finance agreement check with your mortgage broker about different bridging loan options, your personal finances and your ability to service two mortgages short term.
If I have bridging finance do I still need a deposit?
Yes – Bridging finance is not covered by Lenders Mortgage Insurance (LMI), so you will need at least 20% of the peak debt as a deposit in order to purchase your next home.
If you have equity in your current home and your mortgage has redraw facility, you can use your redraw equity as your deposit. However if you do not have sufficient funds for a cash deposit – then talk to your ACA mortgage broker about alternate deposit options including deposit bonds.
How long is a bridging loan term?
If you are purchasing an existing property typically the bridging loan term will be no more than 6 months. If you are purchasing a new home the term will be no more than 12 months. If there are extenuating circumstance and you are unable to sell you existing home within the time limit, then it may be possible to arrange a new agreement.
In most states the typical period for a property settlement is around 6 weeks.
Do I have to make repayments during the bridging period?
It will depend on how the bridging loan is structured with your lender. Speak to your mortgage broker about the repayment options available when setting up bridging finance. Options include interest only repayments that are capitalised on your peak period, or standard principal and interest repayments which will help reduce the total loan amount and the additional interest charged.
Can a bridging loan be used to cover construction costs?
Most lenders will not approve a bridging loan to cover the construction cost of a new home.
However a few lenders will approve a bridging loan if construction is completed within 6 months of the first progress payment. Typically the construction of a new house ranges from 12 to 16 weeks. You will have to make repayments on both your current mortgage plus the new mortgage, however you will have 12 months to sell your current home.
What are the alternatives to bridging loans ?
In most cases, next home buyers are financial better off if the current home is sold prior to purchase your next home.
It may be possible to negotiate a longer settlement on the purchase of you new home, while you sell your current home. Or organise to lease your home back from the new owner, giving you time to find your next property.
Call us on 1300 222 667 and one of our mortgage specialists will assess your situation and advise which option will benefit you the most.