If and when to upsize
Before you continue, what are the actual costs of moving home and upsizing? Check out our post on moving on up and use it with this article to gauge whether those costs will make the difference between if and when to upsize.
Deciding when to upsize: the financial considerations
1. Your budget.
You probably already have a fantastic spreadsheet set up that you have been using for years to monitor your budget. Right? Well if not, no stress. Now is the time to do a budget and luckily half the work has been done for you. Use our budget calculator to help you find areas you can address to help you save. With a clear idea of your incomings and outgoings, you can better assess whether you will be able to afford the various costs of not only moving but moving into a larger home.
2. When in limbo.
The first question is: will you sell your existing home so as to afford your new purchase? If not, will your existing home become an investment property, in which you earn an income from its rental yield? In this case, check out how to make the tax system work for you as an investor.
If you are selling your existing home, will you sell it before you buy your new home? If it is after, following an understanding of your budget and the other costs of moving house, will you be able to afford the period of time where you haven’t sold your first home? Ensure you talk to a financial adviser about how your lender can support you through this transition by assessing your equity and income.
3. Costs of moving.
Set aside between $1000-2000 for the costs of not only removalists, but a skip to throw out all of those things you have accumulated over the years as well as the cost of cleaning your old home (and possibly your new home).
4. Don’t forget those surprises.
Prepare yourself for the need to make possible repairs to your new home. If you have been smart and had a building conveyancer and pest inspector investigate the property before you bought it, then you shouldn’t come across any surprises. Beyond these, will you want to make any renovations or changes to the home either in the short term or long term? Even if you think you will want to renovate in a year or two, prepare your finances accordingly.
Financial notes for your lender
With the above considerations for deciding when to upsize, jot down the following figures that you can bring to your financial adviser and eventually your lender.
1. Your credit limits and status.
A lender will use this to judge whether you have the potential to use credit in the future that you may be unable to pay back. You can reduce your credit limit. However, set aside a week for this change to take place before trying to secure a loan.
2. The selling price of your home and selling costs.
This helps a financier judge the extent of your loan.
3. Your annual income and other incomes.
Financiers will look at a combination of both your income (from both your salary and investments) as well as your equity to understand your financial capabilities. In some cases, a strong combination of the two will mean you can borrow less than 80% of the new property’s value and avoid taking out Lenders Mortgage Insurance.
4. Other financial commitments.
Doing an extensive budget rundown will help you provide information on your outgoings. Do you have loans on any other assets, such as a car? Your other financial commitments also include your ongoing living costs, such as current and projected school fees.
5. Value of any other investments.
This will help evaluate the value of your equity.
6. Savings balance.
With a clear picture of your immediate financial health, you can have a realistic conversation with a financial advisor about your move’s affordability. After deciding when to upsize, you can then develop your plan-of-attack.