Know what you can afford to buy before you sell your home
Before you get too excited about selling your home and buying again, take time for some pre sale planning. Getting this part right will save you a lot of time, inconvenience, disappointment and money. You’re about to sell your biggest asset and replace it with another big asset. We’re not talking petty cash here, this is serious money and requires serious preparation.
Whilst there are many reasons people sell and buy again here are the top four;
Four reasons to sell and buy again.
- The family is growing and your home is too small
- The kids have left and your home is too big
- You want to live in a better location
- You want a nicer/different type of home
Lifestyle reasons aside, the possibilities for your next step are tied in with your financial position. It will be this as much as anything that will provide the goal posts for your next move. There is a lot of information you will need to know, but in terms of pre sale numbers, there are five key ones;
Here are my;
Five pre sale numbers you must know
- Accurate selling price for your home? This can be a hard question to answer. Granted you can get appraisals from real estate agents. But, how accurate are these numbers? Do your own research and get hard data on recent sale prices of homes like yours near by. Try and avoid thinking, ‘ oh yes but my house is worth more than the neighbours’. Think like a buyer, not a seller.
- How much will it cost to sell? How much commission will you pay your real estate agent? Does that include marketing costs, or are they extra? Allow for a conveyancer or solicitor to do the legal work. Do you have any exit costs from your home loan?
- How much cash will you have after the sale and payment of all costs, including paying out your home loan? This will be your deposit and money to cover purchase costs. The more you have the better.
- Borrowing/affordability capacity. This is a critical number. Will this be enough if you want to buy a more expensive home and need a bigger loan?
- Purchase price maximum. When you know the answers to 3. and 4. use my simple calculation to work out your maximum purchase price. It’s;
(Net cash from sale + plus borrowing capacity)x 0.95=max. purchase price.
Timing is everything
How you time settlement of your sale and the purchase is critical to avoid costly finance. There are three possibilities;
- Settlement of your sale happens before settlement of your purchase. This is good. It means you have the money from your sale in the bank ready for settlement of your purchase. The downside is you may have to find somewhere to live for a short time until you move into your new home.
- Settle at the same time. In jargon we call this a simultaneous settlement. Settlement of the sale and settlement of the property you are buying happen at the same time. It’s probably the hardest to coordinate, but it does happen.
- Settlement of your sale happens after settlement of your purchase. This is not the best as it means you will need bridging finance to pull it off. It is also the highest risk way of selling and buying. Try to avoid this if you can.
How to make it all happen
- Get an appraisal/valuation on your home
- Find out your borrowing capacity*
- Work out the timing of your sale and purchase
- Estimate your maximum purchase price with the simple formula above
- Put it all together into a simple pre sale plan
* This is not a simple thing to get right in today’s complicated lending world. To get a professional, accurate calculation, complete our Client Information Form.We will be back to you next business day with this key information.
As you can see, this is not a project to be undertaken lightly. It requires careful thought, an understanding of your financial position and a plan. Good preparation will save you time, frustration and money.
If you would like a copy of our ‘Line up your ducks’ pre sale plan please complete the Client Information Form and we will email to you with your borrowing capacity result. Alternatively, email Paul at email@example.com. and request a copy.