Homeowners tend to have a lot of their capital tied up with their property, which means many are either relying on the sale of that home or use of built-up equity to fund the purchase of the next property. If you are planning on keeping your existing property, it is important to understand your borrowing power and the right loan structure to achieve your goal. If you are looking to buy and sell, you may want to know how a bridging loan can work to cover the gap between purchase and sale.
Generally, lenders look for about a 20% deposit. You may be able to purchase with less than this, but you will likely need to pay lenders mortgage insurance (LMI). To help cover the deposit, you may be able to use equity you have in your current property, or look to take out a bridging loan. Another option may be a deposit bond. This is essentially a guarantee that you will pay the purchase amount by settlement and is provided by an institution that acts as guarantor. You can usually apply for a deposit bond once the lender has formally approved your loan.
If you intend to keep your current home and purchase another, you may be able to use equity to buy the property. Lenders calculate equity based on how much of your existing property you own outright. This amount can potentially then be used as a deposit toward buying your next property.
For example, if the lender values your property at $650,000 and your current loan balance is $450,000, your equity is $200,000. The usable equity is generally about 80% of the lender’s valuation of your property minus the loan amount. In the above example it would be 80% of $650,000, which is $520,000, minus $450,000. This would leave you with $70,000 of useable equity. Estimate your equity with our home equity calculator.
If you’re in the market to buy property, it is a good idea to first understand how much you may be able to borrow. This is where home loan pre-approval comes in. The lender will let you know how much it is willing to lend you based on your current circumstances, giving you confidence to look for properties within your price range.
Find out how much you may be able to borrow to purchase property.
Understand how much money you have coming in compared to what you spend using this calculator to help you identify where you could save.
Understand the amount you will need to pay your lender before you apply for a home loan and ensure you can meet your repayments.
Some lenders offer a feature that enables you to take your existing home loan with you when buying a new property. This is called loan portability. If you’re happy with your existing lender and loan, this could save time in finding a new one as well as fees that can come into play when refinancing.
Deciding whether to buy or sell first depends on market conditions, cash reserves, and your risk tolerance. Selling first gives you exact certainty on your budget, though you may need temporary rental housing. Buying first avoids temporary moves, but requires bridging finance or accessible equity.
To keep your current home as an investment and buy a new primary residence, you can pull equity out of your existing property to form the deposit for your new home. Correct loan structuring is crucial here to optimize tax deductibility and protect borrowing power.
Downsizing often frees up capital. Beyond finding a smaller home, consider transaction fees, body corporate costs (if moving into a unit) and potential superannuation strategies. Eligible sellers aged 55+ can also take advantage of the downsizer super contribution scheme to boost retirement funds tax-effectively.
When moving to a new location, lenders evaluate job continuity, probationary periods or remote work arrangements to confirm borrowing capacity. Getting pre-approval before you begin searching interstate ensures you can act quickly when you find the right property.
Upgrading typically involves higher stamp duty, conveyancing fees, pest and building inspections, and potential lender fees. Use our stamp duty calculator to factor government charges into your budget early.
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