Thinking of a home upgrade? Read this first!

Upgrade now? Interest rates are holding at historically low levels and home prices are on the turn, so it makes sense for existing homeowners to consider a home upgrade right now – if they can afford to do so.

However, says Berry Everitt, MD of the Chas Everitt International property group, just like buying a home, selling a home often comes with unexpected or “hidden” costs, so you need to do your homework properly before you leap at the idea of moving to a bigger property or a more upmarket area.

Writing in the Property Signposts newsletter, he suggests that you first do the following:

* Get home loan pre-approval for your new purchase. Consult a mortgage originator and find out if you will qualify for a new home loan, and if so, for how much. If you have not bought or sold a property for some time things are bound to be different from what you expected and you certainly don’t want to sign an agreement to sell your home before you know if you qualify to buy another.

*Work out what you will need to buy your replacement upgrade home – not only the purchase price but the cash required for the deposit (usually between 10 and 20% these days), and for the transfer duty, bond registration costs and legal fees. You should also factor in other issues including the likes of moving costs, any new insurance required, utility deposits and the cost of downtime if you happen to run a business from home.

*Find out how much your existing property value, with the help of a qualified, experienced estate agent who can supply you with the very latest information about comparative home sales in your area.

*Find out what it will cost to sell your existing home – including the estate agent’s commission, the cost of any repairs that must be made before you put the property on the market, and well as any property rates or levies payable in order for you to get clearance certificates.

* Estimate the likely proceeds from your sale. Find out from your bank what your home loan settlement figure will be in three months’ time (the notice period required unless you want to pay a penalty for the cancellation of your existing bond). Then subtract this figure from the estimated sale price, and from what is left subtract the estimated costs of selling and you will have a pretty good idea of what you’ll have left at the end of the sale process.

“If this is not enough to cover the costs of a new home upgrade,” says Everitt, “you will have to pay in cash to make up the difference – or perhaps put your home upgrade plans on hold while you build up a bigger ‘war chest’.”

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