Important questions before you upsize your home

For many Australians, their first home isn't their forever home. As families grow, many look to move to larger properties for extra space - but upsizing may not be the right move for everyone.

Why upsize your home?

If you're looking to buy a larger home, the first question you need to ask yourself is why. Is it because you've added a child or two and need extra rooms, perhaps a yard, and more storage?

If you don't have extra or growing children, maybe you're planning to have them? Or have you always pictured yourself in a larger home?

Some upsizers assume a larger home will build more wealth in the future which can sometimes be the case, but not always.

Be clear on exactly what you're wanting to achieve before you start looking for another home. Knowing your reason for moving will help you determine whether buying a larger home is a sound move for your circumstances.

In most cases, a larger home will mean a larger mortgage and if you have young children - or may be about to have them, those two things may not be compatible.

Can you afford to upsize your home?

This leads us to the important question of how much extra a larger home will cost you, particularly if you'll need to increase the size of your home loan to purchase it.

You'll also want to consider whether you need to sell your current home to fund a larger one. If you do, you'll want to know how much equity you have in your current property, and how much of that can be put towards your new home.

If you're planning to start (or add to) a family, you'll need to take periods of reduced income during parental leave into consideration, as well as the possibility that at least one parent may not return to full-time work - at least while children are young.

Ask yourself how much of your income will need to be directed to the asset you're living in. Too large a portion may put you under financial strain when you can least afford it, even if it may pay dividends when you eventually sell the property (if you do).

Our borrowing power calculator can help you assess where you stand with your finances, how much you may be able to borrow, and what monthly home loan repayments you may be up for.

Choosing the right property

If you're a savvy homebuyer, you may think buying a property with an eye on renting it out in the future will get you the most out of your purchase.

However, good family homes don't always make good investments. For those buying a home to live in, future capital growth typically sits lower on the list of priorities, below amenity and family needs.

Your list of requirements for a larger home may be more concerned with the number of bedrooms, proximity to good schools, outdoor play areas, and health facilities. If it's space you're after, you might also have to move to a less desirable location where property prices may not grow at the same rate as in more in-demand areas (but not always).

Upgrading your home? Don't forget to upgrade your mortgage

Buying a larger, fancier, or generally more expensive home will likely also mean taking out a more sizeable mortgage.

Arranging a larger mortgage will follow the same process as taking out your existing mortgage (assuming you have one). However, your borrowing capacity (and therefore the risk you present to a lender) will need to be re-assessed, particularly if you're looking at a loan-to-value ratio (LVR) of 80% or more.

Your record as a borrower will unquestionably affect your success as an upgrader.

Another key to upsizing is ensuring you're not overstretching yourself and can meet higher home loan repayments alongside your other expenses. These might have grown alongside your family - at least in the eyes of your lender.

Also, beware of having an inflated view of the value of your existing home before you set out to upgrade. It's wise to arrange a market appraisal with a local real estate agent although an official property valuation will likely give you a more accurate picture.

Calculating other costs of upgrading a home

Beyond mortgage repayments, other expenses associated with owning a home are usually higher for those who own larger properties. You'll likely face higher utility bills, increased council rates, and considerably more maintenance costs.

There'll also be the increased cost of stamp duty on a more expensive property. And when it's not your first home, you can forget any first home buyer concessions or grants you may have previously received.

Then there are other expenses, including:

• Moving costs

• Costs to kick start your power, internet, etc.

• Possibly more lenders mortgage insurance (LMI)

• New furniture and fittings to fill the additional space

See also: How much does it cost to buy a house?

Financial strategy for upgrading: What you need to know

What happens to your home loan?

If you manage to buy and sell at the same time, the proceeds from your sale will likely make up part of what you pay for the new property. The rest will need to come from a lender.

See also: What to expect on settlement day

If you're happy with your current loan and your lender offers a portability feature - allowing you to transfer your existing mortgage to another home - you can continue on the same home loan, perhaps topping it up in the meantime.

This strategy may also save you money on establishment fees and other home loan costs.

Can you take out a new mortgage?

Buying a new home can also be an opportunity to reassess the home loan market and see if you can secure a lower interest rate or better terms and conditions than your previous home loan.

While you may start by asking your existing lender what it can offer you, make sure you shop around too. Home loan products, rates, and features change all the time and some may offer competitive rates, special offer deals, or more attractive terms and conditions.

A mortgage broker can help you navigate the market if you're feeling overwhelmed. Ideally, they should be able to match you with a home loan best suited to your needs.

See also: Things to ask your mortgage broker, and why

To kick you off, the table below features some of the lowest interest rate home loans currently available on the market:

Important Information and Comparison Rate Warning

What happens if you buy before you sell?

If you want to buy your dream home before your existing home is sold, you may have to consider taking out a bridging loan. A bridging loan can allow you to temporarily own both homes while you wait for your first one to sell.

Bridging loans are specialised mortgage products and can come with considerably higher interest rates than regular home loans so you'll need to be prepared to take on the extra cost.

See also: Should you buy and then sell, or sell and then buy?

Be warned, this can squeeze you financially at a time when you're already facing the usual costs of purchasing a home. It could even pressure you to make a quick sale on your existing home, which may lead you to sell it for less than you were hoping for.

There is no 'right' answer in the sell-then-buy or buy-then-sell conundrum. It's advisable you go down the path that best suits your circumstances and the options available to you at the time.

Remember, a vital part of successfully upsizing is to keep your finances top of mind. A dream home can turn into a prison if you aren't clear on your limits from the outset.

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