Buying a house before selling yours

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. 
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Thinking of buying a new home before selling your current house?

A lot of homeowners choose to sell their current home before buying a new one, especially as trying to buy and sell at the same time is a huge endeavour and it can be stressful because the process often takes longer than expected.

But what about buying first and selling second? 

What to consider when buying your new home before selling

When making the decision to buy or sell first, there are a few key factors to consider. 

1. Property market conditions 

When you’re looking to buy and sell you need to assess the market to decide what course of action you’re going to take.

If the market is currently rising, so prices are going up, it’s recommended you buy first and sell second. This is so you buy at a lower price and sell for a higher price.

Doing the inverse in a rising market may mean you miss out on value on your old home and end up paying more for your new one. 

If the property market is strong then buying first is less risky, as there's a greater chance of being able to sell your old property quickly. However, if the property market softens before you have sold your old property you may end up worse off financially as there are fewer potential buyers. This strategy also comes with the danger that if you can’t get a sale on your new home before you settle on your old one, you’ll be paying two mortgages.

For example, if you get an optimistic valuation of your current property you may over-extend yourself when buying a new house or find it difficult to balance two mortgages for an extended period of time if it takes longer to sell than originally anticipated. 

If you are considering buying a new home first, it's important to get an accurate property valuation and take into account any changes in the housing market that could affect the purchase price. 

2. Your financial flexibility 

Generally, buying a new home first is seen as a riskier strategy as it relies on you being in a strong financial position. As discussed above, it may take longer to sell your old home than expected which can result in additional costs, repayments, and fees. 

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 sale price. 

One way to mitigate this is to negotiate an extended settlement period on the purchased property. This can give you some flexibility while you are still in the process of selling your old home. 

3. Your borrowing power 

Lastly, 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 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. 

loans.com.au Managing Director Marie Mortimer says it's extremely easy and quick to find out how much you can borrow. "At loans.com.au, we have a great borrowing power calculator which shows how much you may be able to borrow. It only takes 3 minutes to fill out, and all you need to enter is your income and expenses."

Not sure how much you can borrow? Use our calculator to estimate your borrowing power

4. Subject to completion of sale 

When submitting an offer to buy a home, you can state in the contract that buying the home is “subject to completion of sale”. This means you only need to fork out for the purchase after your previous home has been sold.

This can remove much of the stress of figuring out whether you’ll need to rent a place before moving into your new home.

However, this approach may make you less attractive to the seller than someone who isn’t stipulating this clause. As a result, you may have to put in a higher offer to convince the seller to accept the offer.

You’ll also have to enter a deadline for the sale of your old home, at which point the contract is nullified, to give the seller some sort of timeline.

5. Simultaneous settlement

A simultaneous settlement is when the purchase of your new home and the sale of your old home happens on the same day. It sounds great in theory, but its incredibly hard to achieve in practice.

It requires a great deal of communication with all parties involved and the various legal and real estate professionals involved. It’s fraught with danger as if there’s an even minor problem, the whole process needs to be rescheduled.

Such an issue could cost you in penalty interest, or in a worst-case scenario, see you lose your deposit.

6. Extend the settlement period

The seller of a home sets the settlement date in the contract of a sale, and the settlement period is typically 30 to 90 days. If you’re looking to attempt a simultaneous settlement, extending the settlement period can increase your chances of success.

You can request an extended settlement period from the seller whether you’re buying or selling first and can request anywhere from three to six months.

Of course, the seller doesn’t have to agree to this, so you again may have to sweeten the deal in some way to make it an attractive proposition to them.

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.

In a market where house prices are falling, it’s recommended you sell first and buy second. This is so you get the best possible value for your old home, and may get a cheaper price on your new place.

This strategy will give you a clear budget for your new place and the required deposit, should you not already have one. However, if you don’t find a new place before your old home settles, you may have to rent somewhere to live until you find somewhere, also meaning you would have to move house twice.

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.

When making your decision, be sure to include any additional cost to your calculations.  

Talk to a lending specialist today 

There are many options available for homeowners who want to buy a new property.

For instance, those who want to buy first can use a bridging loan. These mortgages allow buyers to move on to a 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.

Loan portability allows borrowers to use their existing loan to purchase another property after it has sold. It's a feature that can be added on 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.

Both options can involve fees and charges, so it's best to speak to your lender to determine how this may affect your budget.

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. 

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. 

Apply now

Tags: buying a second home | buying a second property

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