Buying your second home
Whether it’s because you’ve outgrown your first home, you’re moving cities, or you just fancy a change of scene – buying your second home can often be more complicated than buying your first.
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Buy, sell, or hold?
You generally have three options – buying a new home before you sell your first, selling your first home before you buy a new one, or buying a new home but keeping the first and using it as an investment property. (Click here for more information on that.)
Buying before you sell
If you choose this option, you could take up a bridging loan which will allow you to cover two mortgages while you sell your old house. However, these loans can be very expensive – paying two mortgages isn’t easy.
This is where conditional contracts come into play – you buy a house on the condition that you sell your old one.
Typically, the conditional contract gives you six-to-eight weeks to sell your house. You don’t have to take the very first offer on the house, but to hold up your end of the contract, you have to make a genuine effort to sell.
During the time limit on the contract, there is typically a “cash-out clause” allowing the seller to sell at any time if they can find a cash buyer – but only if they offer that opportunity to the conditional buyer first.
You will have to pay a deposit on the house upon signing the conditional contract – usually between 5% and 10%, which is refunded to you if the sale falls through… Most of the time. However, if the seller can prove you didn’t take all reasonable steps to meet the conditions of the contract, they may be able to hold on to your deposit.
This is why it’s very important to get a lawyer to go through the fine print on your conditional contract, as the terms can vary a lot between contacts.
Conditional buying is becoming less popular as the number of houses sold at auction increases, because the seller can usually find a buyer who is willing to purchase the house unconditionally.
Selling before you buy
The other option is to sell your house before you buy another one. This has the benefit of letting you know how much you can spend on your new house, but poses the problem of where you are going to live while you house-hunt. You may find yourself having to rent for a while, which eats into your house-buying capital.
You can have a conditional contract which sells your house on condition of finding another one, but these are much less common than the other way around – buyers usually don’t want to deal with waiting on another person’s house hunt as well as their own.
There is no perfect option, which is why it’s important to get good advice. Talk to us about your options for buying your second home, including bridging loans or portable loans.