Checklist for buying your second property
A lot may have changed since your last home purchase. Here’s what you need to know.
You may assume purchasing property is like riding a bike; once you buy your first property, it’s easy to just repeat this when you purchase again.
But this isn’t always the case. Depending on how long it has been since your first home purchase, a lot may have changed in the property and lending industry. So, what things do you need to consider before purchasing your second property?
1) Deposit
You may remember how difficult it was to save for a deposit. But this time around, it may be a little easier. As this is your second property, you may have either the proceeds of the sale of your last property, equity in another property, or savings. If you are in a good equity position, it may mean that you will be able to borrow 80% or less of the purchase price, meaning you will avoid paying extra on lenders mortgage insurance. However, when applying for a home loan, remember you need to show a combination of both equity and income to be able to meet repayments.
2) Finances
If you require a home loan for your second property, the process is similar to taking out a loan for your first home. You will need to have the following details at your fingertips to enable lenders to assess your situation:
- Selling price of your existing home (if you are selling one).
- Selling costs not yet paid (agent’s commission and costs, legal fees, adjustments at settlement).
- Payout figure for your existing home loan (amount owing plus any exit fees – the latter is only applicable for loans established before 1 July 2011).
- The annual incomes of the borrowers purchasing the home.
- Income from investment properties.
- Details of any regular commitments that are not included in standard living costs such as child maintenance, private school fees, childcare costs, contractual obligations to make regular payments like pay TV.
- Combined credit card limits. This is the total of the maximum debt that you could draw from your credit cards, including any interest-free accounts that haven’t been closed down.
- Details of any other debts – amounts owing and payments being made.
- The number of dependents you have.
- The values of any other property or investments that you have, and whether those investments could be sold to help fund the purchase of your new home.
- The balance of savings that will go towards the purchase.
3) Finding a property
Even if you only bought your first home recently, you will still need to research the property market carefully, as it can change quickly. Areas that may have been considered a hot spot last year may no longer be considered a hot spot this year. This is why you need to do your research on areas that are developing and monitor population growth and housing demand.
Also, if this second property is going to be an investment, don’t forget that you are not looking for a property that will suit your needs. Therefore the location and type of property could very well be completely different to a home you want to live in.
4) Management of extra costs
If you are purchasing a second property as an investment, then money management will be extremely important. This purchase will have a big impact on your budget, so you will need to make sure you can handle it.
It is important that you have enough income to cover mortgage repayments for all of your properties. Although the rental income can be used to help pay off the loan, you may experience vacant periods, and will have to produce the money for repayments from another source.
The more properties you purchase, the easier the process should become. However, it does not mean you should stop doing your research.
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of homeloans.com.au. The above is general commentary only and is not advice tailored to any individual's financial situation. We recommend seeking advice from a finance professional before implementing changes relating to your finances.
