Buying a house before selling yours
Thinking of buying a new home before selling your current house? But what about buying first and selling second? When making the decision to buy or sell first, here are a few key factors to consider.
When moving houses, it’s common for homeowners to sell their house first before buying a new one. Doing this can ease the financial burden by not having to pay two mortgages at the same time. However, this strategy may leave homeowners scrambling to find temporary accommodation and storage.
It is possible to buy a new house before selling your current one. This way, homeowners won’t have to rent a place as they look for a new home, and if they take out a bridging loan, they avoid paying for two home loans.
The right strategy differs per homeowner. It depends on your finances, moving timeline, and other considerations important to you.
Benefits of buying a new home before selling with a bridging loan
A bridging home loan can provide more flexibility and convenience. Here are a few more advantages of using a bridging home loan:
- Quickly secure a new home. You don’t have to wait for the sale of your current property to settle. In some cases, buyers lose out on a home they really want because they’re still waiting on the sale of their property to go through. With a bridging loan, you can be in the process of selling your current home while buying a new one.
- Don’t have to rush to sell a current property. Some homeowners would be in a hurry to sell their current home, so they may not get the best deal on their sale. It could also mean they won’t have time to properly prepare their listing or negotiate with the buyer.
- Avoid the hassle of renting and moving. If you sell your home first before buying a new one, it may leave you with nowhere to go but rent a space in the meantime. Once you do find a new home, you have to move again. Not only is moving twice a lot of effort, but there are also a lot of costs involved.
- Make single repayments. One of the main issues homeowners have with buying a house first before selling is the possibility of having double mortgage payments. With a bridging home loan, depending on how it’s structured, you may only need to make repayments on the bridging home loan itself before it turns into a standard home loan.
Drawbacks to buying a house first before selling
There are also disadvantages to buying a house first before selling your current one. It’s best to know the potential drawbacks to make an informed decision.
- Potential for higher upfront costs. When taking out a bridging loan, you’re essentially exiting your current mortgage to enter a new one. This could lead to some exit and early break fees from your old loan, as well as application fees and loan settlement fees for the bridging loan. Review your finances carefully to see if you can handle these additional costs.
- Risk of sale taking longer, which may increase interest costs. Bridging home loans are short-term loans with a maximum limit of around 12 months, depending on the loan agreement. If the sale of your home takes more than 12 months, you may be subject to higher interest fees. If your home sells for less than expected, it could leave you with a larger ongoing loan amount.
What to consider when buying a new home before selling
When making the decision to buy or sell first, there are a few key factors to consider.
Your borrowing power
It's important to understand how much borrowing power you have when looking at buying your next home. If you're still paying a mortgage on an existing property, it can reduce the amount you're able to borrow.
On the other hand, if you have a significant amount of equity built up in your current home, this can help to secure funds to purchase your next property as well as make a strong offer. Use our calculator to estimate your borrowing power.
Your moving timeline
The timeline of your move is an important factor to consider. Do you need to move to a new area for a new job? Are you rushing to move with your family before the school year starts? Understand your personal timeline. See if you have time to sell your house off first before looking for a new one to buy. For those who need to move quickly, it may be more beneficial to buy a new house first to ensure a smoother move. It all depends on your personal situation and whether you are under a time constraint.
Property market conditions
Your buying or selling experience could be affected by the kind of property market you’re dealing with. If it’s a seller’s market, you may have an easier time selling your property, but there could be more competition when buying a new one. Because of this, it may be more beneficial to buy a new home first before selling your current one.
A buyer’s market, on the other hand, is ideal for buyers as this usually means there are more homes available and there’s less competition. However, as a seller, it may be more difficult as buyers have more options.
Regardless of what type of market it is, the best strategy will still depend on your personal financial situation.
Talk to a lending specialist
Homeowners who want to buy a new home before selling their current home may be able to use a bridging loan. These mortgages allow buyers to purchase a new property without having to wait for their old home to sell. Usually, bridging loans have shorter terms of up to 12 months and have the choice of variable or fixed mortgage rates, depending on the lender. Once you have sold your old property, your loan is generally converted to a standard variable product for the remaining loan term.
Loan portability allows borrowers to use their existing loan to purchase another property after they have sold it. It's a feature that can be added to many home loans, which gives borrowers the freedom to move onto a new property. There may be restrictions regarding values of the properties and settlement dates, so make sure you discuss this with your lender.
It's best to speak to your lender to determine how this may affect your budget. It’s important that you do your research first, evaluate your options, and consider your current financial situation to minimise the stress of buying and selling your house.
As always, seek professional advice to help you make an informed decision.
If you are ready to buy your next home, talk to one of our lending specialists today to start your application or simply apply for a home loan online.
Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your personal circumstances before making any financial decisions.
Find out in under 2 minutes if you qualify for one of our home loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
