Four things to check off your list when buying your second property
Heidi ArmstrongDecember 7, 2020
GUEST OBSERVATION
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?
- Deposit
Most first home buyers struggle with saving for a deposit and you may even remember how difficult it was. 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 a home a loan, remember you need to show a combination of both equity and income to be able to meet repayments - Finances
If you require a home loan for your second property, the process is similar to taking out a loan for your first home. When you start shopping for a home loan, 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 & costs, legal fees, adjustments at settlement).
• Payout figure for your existing home loan (amount owing plus any exit fees).
• 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 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 that you have.
• The values of any other property or investments that you have, and whether or not those investments could be sold to help fund the purchase of your new home.
• Balance of savings that will go towards the purchase. - 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, remember, you are not looking for a property that will suit your needs. So, the location and type of property could very well be completely different to a home you want to live in. - 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.
Heidi Armstrong is the CEO for State Custodians Mortgage Company. Heidi is an expert in personal finance, securitised lending and the mortgage industry and is passionate about educating borrowers to help make smart lending decisions.