If you plan to buy a new home you will need to decide if you should sell your current home first.
Buying and selling at the same time is a huge endeavour and it can be stressful because the process often takes longer than expected.
You might buy a new home but find that no one is interested in buying your current house. Or someone might want to buy your old home while you haven’t found a new place to live.
Either way, you’ll need to focus on whether you should buy first or sell. Here are some points to consider:
Selling first then Buying
Selling your current house before buying is the least risky choice because you know how much money you have to work with, ensuring you’re not going to overspend on your new house. Plus, you have the deposit money ready.
It’s also easier to apply for a new home loan since you won’t have two mortgage payments to make at the same time.
However, selling first will force you to rent a unit, stay in a hotel, or live with your extended family until you have purchased a new home. You also need to put your furniture in storage which can be quite costly, especially if it takes a long time before you find a new property.
Buying first then Selling
Buying a new home before selling will make moving your stuff a lot simpler. It will also give you time to get your old home ready to sell while you are not living there messing it up. This option is best if you already paid off your mortgage on your old home.
But if you haven’t completely paid off your old mortgage, you may struggle to pay two mortgage payments at the same time. It will also be harder to qualify for a new home loan because you have a much higher debt-to-income ratio.
Another disadvantage of this approach is that you may feel pressure to sell your existing home as quickly as possible and may end up with a lower price. Moreover, you cannot predict how long your old property will stay in the market before it gets sold.
Understanding Bridging Home Loans
If you choose to buy first then sell, you will need a bridging loan. This is a short-term loan that allows you to temporarily own both homes at the same time. It allows you to make repayments as normal on the original loan until your old property gets sold.
This type of loan often has a relatively high interest rate and you might end up paying penalties if you’re not able to sell your house in the allocated time.
Bear in mind that lenders will require you to have significant equity in your existing home before they approve a bridging loan.
Whichever path you choose, it’s important that you do your research first, evaluate your options, and your current financial situation to minimise the stress of buying and selling your house.