Buying your next house

Sell your house and buy a new one at the same time

Things can get complicated when you’re trying to sell your house and buy your next place at the same time. The process of buying and selling simultaneously can be stressful, particularly if you need the money from the sale of your current home to put toward your new one.

In a perfect world, your next house would be ready and waiting as soon as you turn over the keys to your previous one. But of course, the world is not perfect, and the timing between selling one home and buying the next does not always line up the way you want it to.

Selling your house before buying a new one

Many people choose to sell their existing house first. This allows you to have the sale proceeds in hand when searching for that dream home, and it significantly reduces the financial stress of the situation. There’s no managing two mortgage payments or dealing with closing costs while maintaining two houses. It’s simple, straightforward, and easy to budget for.

The biggest downside to this approach is that it leaves you homeless, for lack of a better word. After you sell your home and while you hunt for another, you’re left in limbo, living in your parent’s basement or on a friend’s living room couch. If you have a family, pets, or lots of belongings, that can be a pretty inconvenient way to live — especially without an end in sight.

You also have to move twice. First, to your temporary housing, and then again, once you find your new property. That means twice the hassle and twice the costs.

Finally, it can make you feel rushed or under the gun. With your old house sold and no permanent place to live, the stress could push you toward purchasing a home you’re not quite in love with or ready for.

What types of mortgage can I choose from?

In order to be able to deduct the mortgage interest, since 2013 you can only choose between an annuity mortgage and a lineair mortgage. Did you have a home-acquisition debt on 31 December 2012, and still do without any major interruptions? In that case, you are still entitled – subject to certain conditions – to a mortgage-interest deduction on other types of the mortgage up to a maximum equal to your present loan sum. For example, you can still get interest-only mortgages. For this, it makes no difference who you place your new mortgage loan with.

Are you planning on borrowing more for your new home than your current loan sum? The new rules apply to the amount you borrow on top of the old mortgage sum. The most popular type of mortgage among our customers is decreasing term repayments because this gives you more flexibility and lower monthly repayments in the initial few years.

How much can I borrow based on the value of my home?

In addition to the maximum borrowing capacity based on your income, the value of your home also has a maximum borrowing threshold. As of 2018, you cannot borrow more than the market value of the property, subject to the case you invest in energy-saving measures. In that case, you can borrow up to 106% of the market value, subject to conditions.

The maximum borrowing threshold compared to the market value of property in 2020 is 100%.

The market value of the property is usually determined as the lower of the purchase price and the market value as stated in an appraisal report. In some cases, a recent WOZ (real-estate appraisal) assessment suffices if the WOZ value is much higher than the borrowing amount. For newly built houses, the market value is usually equal to the total cost of construction, which is the sum of all costs including the land and any additional work.

What if I haven’t sold my current house yet

There are different possible reasons to buy first or sell first. Do you want to buy a new home before your current home is sold? Then it is important that you are able to show that you have enough income and/or savings to cover repayments on two mortgages temporarily. Depending on your lender, this may be a period of one to two years.

You must also be able to show that you can absorb any residual debt from the sale of your current home. The value of your current home is usually set out in a statement from your selling agent or a recent valuation report.

If you have little or no savings, it is usually better to wait until you have sold your current home. If you don’t want to wait, one option may be to have a relative sign a statement that they will donate any double charges to you.

Buying a house before selling

There are a lot of advantages to buying your new home first, before selling your old one. Primarily, it makes the move easier. You’re able to take your time, move your belongings to the new place on any schedule you like, and avoid living in limbo while you wait for that old house to sell. It’s also a good choice if you’re on a tight timeline. If you know you need to be in a new city for a new job by a certain date, buying first can help ensure you’ve got a place to live by your set-in-stone deadline.

On the financial side, it’s another story, though. Buying your new home first takes serious financial resources. Not only will you still have your existing mortgage payment, but you’ll have a new one, plus closing costs, your down payment, moving expenses, and upkeep and maintenance on both properties. It can be a lot to handle, especially if you’re on a tight budget or limited income.

Buying first may also make getting a mortgage harder. Because you still have the existing mortgage debt to your name, your debt-to-income ratio could be much higher. That could mean a lower available loan balance for your new purchase, higher interest rates, or even not qualifying for a loan at all.

How do I deal with equity?

Will you have any money left after you have repaid the mortgage when selling your property? The best thing to do is to reinvest this money in your new home. If you don’t, you will lose any entitlement to a mortgage-interest deduction on the amount of the equity. If you buy your next home more than three years after you sold your previous home, this does not apply.

It is not unusual for the transfer of your current home to a new owner to take place after you have already become the owner of your new home. In this case, you do not have equity at your disposal when you buy. The solution is to temporarily borrow extra money for the new home or to take out a bridging mortgage loan. Learn more about bridging mortgage loans.

If your current home is worth less than your mortgage debt, you will be left with a residual debt when you sell the property. This is called ‘negative equity.

How much can I borrow on my income?

The Code of Conduct for Mortgage Loans describes how much you can borrow. In practice, this means that your maximum borrowing capacity from various lenders will be more or less the same. Your borrowing capacity is determined based on your qualifying income. Your qualifying income usually consists of the following income components:

  • Gross monthly salary
  • Holiday pay
  • Thirteenth month’s salary
  • End-of-year bonus

    Any allowances or bonuses are usually excluded from your qualifying income. Depending on the type of allowance/bonus, different lenders may still offer different options. Of course, we have a good understanding of these options and we are happy to help you.

    Have you been earning income from your own business for at least one year? Then you can let this business income (partially) apply to your qualifying income. One of our specialist advisers can tell you more about this.

    Keep in mind that the following can reduce your maximum borrowing capacity:

  • (Student) loans
  • Ground leases
  • Spousal maintenance
  • Overdraft facilities, credit cards, credit facilities (if registered with the Credit Registration Office (BKR))

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