Buying another house, how is it usually done when you already own one?

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Forums › Finance and wealth management › Buying another house, how is it usually done when you already own one?

David321

485 posts

Ultimate Geek

#306782 21-Aug-2023 12:22

Hi all,

My wife and I would really like to be able to rent our current house out and buy another nicer house for us to live in, but given the prices these days (of what we want) I think our only option would be to sell our current house and take a loan for the difference in cost between the sale price of our current house and the purchase price of the new house.

This is where I am curious and a bit stuck, as far as I see it, we cant afford a new house unless we sell the one we are living in, but we cant sell our house first as we would have nowhere to live.

What do most people do in this situation? I considered renting after we sell where we could look for a new house to buy, but then there is the issue of finding a rental and paying probably $500-$600 a week for what will probably be a one year lease, I don't like our chances of people wanting to sell to us if we can only complete the purchase once our lese expires.

I also considered borrowing the $750,000-ish we would like to buy a new house before selling our house, but id be looking at weekly repayments of around $1000, totally unaffordable for us right now with a daughter at pre-school.

That brings me to my last thought, purchasing with a condition that we sell our house first before paying them and taking ownership, the thing with this is I don't think that would be very appealing for sellers, I know for a fact if I had two offers on my house and one was offering more than the other but had to sell their house first I would happily take a lower offer if it would be an immediate sale.

Some numbers for those who might find it helpful,

Our house is probably worth around $550,000, we are free hold, well kind of, we have about 50k left but 80k in savings which offset the debt fully meaning we pay no interest (KiwiBank offset account).

We think we need about $750,000 - $800,000 to buy a new house that we like meaning we need to borrow about $200,000 - $250,000.

Not sure if it worth noting or not but its only my name on the house and mortgage (I had the house before meting my wife), she has never owned a house or had a mortgage.

Is there another way this can be done that I have not heard of, or is it really this difficult?

_David_

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1688 posts

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#3118469 21-Aug-2023 12:27

When I first bought a rental property my bank let me use the equity in my own home to secure the loan for the second property with no actual cash input from me. This may not be quite so easy these days becasue of the requirements for minimum cash input from the buyer.

trig42

5809 posts

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#3118471 21-Aug-2023 12:32

You put your house on the market and go looking for a new one.

You make the offer on the new one subject (among other things) to the sale of your current home.

Do your sums while looking. Remember the agents' fees will be about 4% of the sale price. Lawyers and moving costs (as well as whatever you need to buy for the new home).

My tip - be very realistic about what your current one is worth. The agents will give you a puffed up price - they want to make you feel good, and they want the listing.

We've just been through this (though, going the other way, we wanted to pay our mortgage down).

The agents told us we'd get $x. We'd looked around and were happy with $x-10%. We went to tender. The best offer we got was x-10%. If we'd held out for what the agents told us it was worth, we'd still be paying the $750 a week mortgage payments.

Once we had an unconditional contract on ours, we went making offers (less the condition of house sale) on others - we were pretty much cash buyers and could offer accordingly.

Prices are falling, and buyers know that - you'll get the advantage of that when you go to buy a new home too don't forget.

EDIT - Of course, if you wanted to keep your existing house, and your incomes support it, you should be able to find a bank that will take the existing house as the equity. $500,000 equity on two houses worth a combined $1.25m would satisfy their equity requirements I think.

phrozenpenguin

840 posts

Ultimate Geek

#3118472 21-Aug-2023 12:32

Speak to a mortgage expert/advisor and they will be able to run through your options. I did a whole lot of scenarios like yours and they cleared my options up for me in a 15min call! Obviously you need to find a decent one who isn't just trying to sell you a new loan, perhaps try Kiwibank as you have your existing loan with them.

johno1234

2793 posts

Uber Geek

#3118478 21-Aug-2023 12:42

Having fully offset mortgage is a very good place to be right now. Kiwibank base your offset mortgage monthly repayments on the mortgage principal and ignore the offset account balance. Zero interest charged for you so all your monthly payment pays down principal. IOW with sky-high 8.5% floating rates you are paying down the principal really fast.

The feel I get reading on sites such as interest.co.nz is that the market is not at the bottom yet. Have you considered waiting that out?

Otherwise you just borrow as the bank determines you can afford. They should consider your combined incomes plus your expected rental income when determining how much mortgage you can afford to service. Ask your bank if you can secure the mortgage with both properties which will be well over the required 20% equity required to get reduced interest rates.

Renting is not without its difficulties. You have to comply with the healthy homes insulating and heating requirements and if you are unlucky enough to get deadbeat tenants then things can go south fast and in a big way.

David321

485 posts

Ultimate Geek

#3118480 21-Aug-2023 12:43

trig42:

You put your house on the market and go looking for a new one.

You make the offer on the new one subject (among other things) to the sale of your current home.

I thought of this, but figured it would not be very appealing to prospective sellers as mentioned in my post, but I am curious, did you find this a slight barrier to getting someone to sell to you?

As mentioned above If I had a few offers on my house I would probably avoid the ones who would only do it once they had sold their house due to the fact of not knowing how long it will take, or are they asking to much for their house and finally decide against selling if they cant get what they want for it?

_David_

trig42

5809 posts

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#3118483 21-Aug-2023 12:47

David321:

trig42:

You put your house on the market and go looking for a new one.

You make the offer on the new one subject (among other things) to the sale of your current home.

I thought of this, but figured it would not be very appealing to prospective sellers as mentioned in my post, but I am curious, did you find this a slight barrier to getting someone to sell to you?

As mentioned above If I had a few offers on my house I would probably avoid the ones who would only do it once they had sold their house due to the fact of not knowing how long it will take, or are they asking to much for their house and finally decide against selling if they cant get what they want for it?

No, it's pretty normal.

We actually waited until we had an unconditional offer, so we didn't need the 'Subject to sale of property' condition. We had a subject to finance condition (though we had also secured finance if we needed it as well).

If you made an offer for a house you really liked, with the subject to sale of property condition, and the vendor is happy with the price, they will ask the agent to put a cash-out clause in the contract so that if someone else comes along with the money they're happy with, you are given x (usually 5 working) amount of days to go unconditional or they sell to the other purchaser.

concordnz

472 posts

Ultimate Geek

Trusted

EMT (R)

#3118484 21-Aug-2023 12:48

Yes, this is regularly done,
The banks provide what is called "bridging finance"
(and you pay this off when your original house is sold)
If I recall correctly - you only pay the 'interest' on the bridging finance, not the capital repayment.

Id also recommend talking to a Mortgage broker.
They are free & know which banks are best for your particular situation and location.

I've used a couple of good ones at Mike Pero Mortgages.

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johno1234

2793 posts

Uber Geek

#3118486 21-Aug-2023 12:52

concordnz: Yes, this is regularly done,
The banks provide what is called "bridging finance"
(and you pay this off when your original house is sold)
If I recall correctly - you only pay the 'interest' on the bridging finance, not the capital repayment.

Id also recommend talking to a Mortgage broker.
They are free & know which banks are best for your particular situation and location.

I've used a couple of good ones at Mike Pero Mortgages.

I think the banks are very wary of bridging finance these days. I do recall back in about 2004 they were falling all over themselves to offer it but more recently they were not at all cooperative...

Be interested to know if this has changed.

David321

485 posts

Ultimate Geek

#3118491 21-Aug-2023 13:07

concordnz: Yes, this is regularly done,
The banks provide what is called "bridging finance"
(and you pay this off when your original house is sold)
If I recall correctly - you only pay the 'interest' on the bridging finance, not the capital repayment.

Id also recommend talking to a Mortgage broker.
They are free & know which banks are best for your particular situation and location.

I've used a couple of good ones at Mike Pero Mortgages.

I have just looked into the Bridging finance after reading your reply its still on the Kiwi Bank website so hopefully its still an option! Looks ideal from the very little I know about it so far. Would it be correct to assume if our current house was worth $550,000 and the one we want is $750,000 we would pay interest on the $200,000 difference or the whole $750,000 total?

So we pay just the interest on the loan and then proper payments start once our house is sold? do they give a time limit to sell your house or any other conditions like that?

_David_

cddt

1548 posts

Uber Geek

#3118492 21-Aug-2023 13:10

trig42:

Remember the agents' fees will be about 4% of the sale price.

Should only be 2% these days (source: sold last year and probably could have negotiated this rate even lower).

Senecio

2710 posts

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#3118493 21-Aug-2023 13:13

You've essentially got 3 options

Sell, rent then buy
Buy using bridging finance with equity in current house as security, then sell and pay down bridging finance
Buy with a condition upon sale of existing property

I would advise against the first option. If you owned your home for any length of time you don't want to enter the rental market now! The 3rd option really limits what properties you might be able to access. For example, if the house you fall in love with is going to auction you won't be able to participate. And as you've already realised yourself, a seller would prefer a contract that wasn't subject to sale. I would talk to you bank or mortgage broker about what variations of option might be available to you.

David321

485 posts

Ultimate Geek

#3118497 21-Aug-2023 13:27

Senecio:

Buy using bridging finance with equity in current house as security, then sell and pay down bridging finance

With bridging finance, you pay interest only I think? if our house was worth $550,000 and we wanted one that cost $750,000 would we pay interest on the $200,000 difference or the entire $750,000?

The principle and interest payments start when you sell your house? Do the bank give you a time limit to sell your house?

_David_

xpd

Geek @ Coastguard NZ
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#3118498 21-Aug-2023 13:28

cddt:

trig42:

Remember the agents' fees will be about 4% of the sale price.

Should only be 2% these days (source: sold last year and probably could have negotiated this rate even lower).

2% is the lower fee rate at the moment - we have a property on the market.

Just be aware things have changed in the last few years - equity in current house means absolutely zero now. Bank wont even look at us even though the house has almost quadrupled since we purchased it, and we have stuff all of a mortgage left on it.

Gavin / xpd / FastRaccoon / Geek of Coastguard New Zealand

LinkTree

duckDecoy

896 posts

Ultimate Geek

Subscriber

#3118562 21-Aug-2023 13:43

For what its worth. Mary Holm always recommends selling your place before buying a new one. If for whatever reason your house doesn't sell you are in a incredibly exposed position. Unlikely, but life shattering if it happens.

quote/

"I would add this: Please, please sell before you buy. In this market it might take many weeks for you to sell, and you don’t want to be stuck paying for two houses for a long period. That’s when people end up selling for a really low price, out of desperation.

Selling first also means you know exactly how much money you have to play with. And once you’ve sold, there should be a wide choice of homes to buy, in this slow market."

Bridging finance would be used to cover the gap from selling to buying.

MikeAqua

7773 posts

Uber Geek

#3118576 21-Aug-2023 13:59

David321:

I thought of this, but figured it would not be very appealing to prospective sellers as mentioned in my post, but I am curious, did you find this a slight barrier to getting someone to sell to you?

As mentioned above If I had a few offers on my house I would probably avoid the ones who would only do it once they had sold their house due to the fact of not knowing how long it will take, or are they asking to much for their house and finally decide against selling if they cant get what they want for it?

On a couple of occasion, I've taken a lower offer, because it was a cash offer or even better a cash unconditional offer.

You have to weigh up the risk of offers falling over due to finance or other conditions. Often, there is whole cascade of properties changing hands and the fewer dependencies there are, the more likely a sale is to proceed.

Mike

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