Buying a bigger or better home is exciting and there are a number of ways to get a bigger home loan to help you do this. The transition period can be tricky so it is important to pick an approach that will work with you and the bank.
What is bridging finance? It is usually a short term way to bridge the gap between buying and selling a home. So that you can move into the bigger home first and then have time to sell your old place.
Open ended bridging
If you have decided that you want to buy first and then sell, you will need open ended bridging finance. Banks usually would want you to be able to service the total loan amount while you are trying to sell. This option is not always preferred due to the high loan repayments but this can be managed a little by using an interest only term and getting a top-up.
Bridging finance
If you have sold your house and bought one, but find that the house you bought, settles first, you may be able to obtain some bridging finance to tie you over until you get paid from the buyers of your house.
Same day settlement
If you are buying and selling on the same day then most banks can do a security swap. This can mean getting around any break fees if you happen to be on a fixed rate. This way you only need apply for any top up required to complete the purchase.
Other ways to trade up
If you are unable to obtain a home loan approval to bridge the gap, you could consider one of these alternative – to help facilitate the process of moving in to a bigger home.
Getting time to sell or buy
You could sell your home conditional on being able to find a new home in a particular amount of time. This could work when the property market has a lot more buyers than sellers, as you will have a better chance of finding a buyer willing to wait for you.
In a housing market with a lot more sellers than buyers, the opposite could work. Either way using this technique will limit the number of buyers and sellers you work with so it might not get you the best price.
Stretching out the settlement date
You could take the risk and sell your home with a long settlement date – so someone signs up today but doesn’t get possession till months later. This will give you time to buy and give you the chance to be able negotiate the appropriate settlement date.
You could also buy with a long settlement date and have time to sell. Both these options carry some risk so it is important to sit down with an advisor and think it through.
As an Auckland based mortgage broker I often have these discussions with home owners looking to get into something better. We are able to get home loan approvals in writing from the bank before you make a commitment to buy or sell to make the journey safer.
