Ready to move but not sure whether it’s smarter to wait for your existing abode to sell first or to buy a new home straight away? While there is no one-size-fits-all solution, weighing-up the facts against your situation can help you make the right choice. Here’s a detailed walkthrough of both scenarios, with handy checklists of things to consider.
The benefits of selling your home before buying a new property
Widely considered the lower risk option, selling your home before buying the next means knowing exactly how much money you’ll have to spend. While you can make an educated guesstimate at what price point it will sell for by doing your research on your local area and talking to local real estate experts, ultimately there is no guarantee until the transaction is complete.
Selling first also means any unexpected costs involved in the sale process are dealt with before you go shopping for a new home. These could be anything from unexpected repairs unearthed during the settlement process to additional marketing costs should your home be slow to sell. If you’ve already bought your next home, these can be hard – not to mention stressful – to cover.
This approach can also put you in a more flexible position when it comes to which offer you accept – not having two homes will likely mean less pressure to accept a price or terms you otherwise may have passed or paused on.
Neither last nor least, you could make a more attractive proposition to lenders if you’ve already sold your home. You’ll not only have the proceeds of the sale in your bank account but you also won’t be in the position of already holding a mortgage. This can translate to better bargaining power when it comes to interest rates and other terms and conditions.
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Things to consider before selling your home before you’ve bought your next
While the benefits are plentiful, the option is not without potential pitfalls. Before plumping for this option, ask yourself:
- Are you happy to rent an interim property if you fail to find anything suitable before settlement?
- Are you satisfied the market is likely to stay stable between transactions? If property prices boom after your sale, this could cost you – or see you drop a rung on the property ladder depending on the severity of any shifts.
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The benefits of buying a second home before selling your first
While the riskier move – no one wants to find themselves unexpectantly holding two mortgages for an extended period – there are benefits to buying before you sell. In a seller’s market, where there is more demand for properties than supply, it can be tricky to secure the purchase of a suitable property while relatively easy to sell your property once you’ve locked in your next move.
This option means you won’t find yourself potentially renting while waiting to find your next home, or panic buying to secure something before the market shifts.
You could potentially mitigate your risks of finding yourself with two properties and no suitable offers by doing your research before you start house hunting. Chat to local real estate experts and request a detailed appraisal of your home and their recommendations for preparing the property for sale. This way you can ensure your home is already optimised for sale as soon as you sign on the dotted line of your new purchase.
It’s also possible to negotiate a conditional offer. In some Australian states, you can, as part of your contract of sale, put ‘subject to sale of existing home’ in the buying conditions. If the vendor accepts this, then they are willing to wait for you to sell your home before settlement within a specified date.
Things to consider before buying your new home before you’ve sold your existing abode
You need to be comfortable taking risks to buy before you sell, and be able to cope with greater financial stress. Nevertheless, if you can handle these aspects, then buying before you sell just may work for you. Before you jump in you need to consider:
- How you’ll cover two mortgages. Work out your costs so that you know exactly how much your repayments will be. Then consider your other expenses and add these up. Next, look at your income, and decide if you can afford to pay for two homes while waiting for one to sell.
- Your purchase costs. Know exactly how much your new home will set you back. Make sure you include stamp duty, the mortgage title transfer fee and conveyancing fees.
- Setting yourself a budget. If the cost of covering two mortgages is tight, then look at how you can achieve this by reducing your luxuries. By cutting other unnecessary expenses from your budget, such as eating out, you’ll free-up additional cash flow.
- Creating a contingency plan. If your home doesn’t sell in a specified time, then consider renting the property out to cover the mortgage. Remember, all you need to do is cover your cost.
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General considerations before deciding which option will work best for you
Being mindful of the buying and selling cycle can assist you with timing when to buy and sell. By timing your move well, it’s more likely you will secure a competitive price. It could also help you to save money in the long run. You can be mindful of timing by:
- Conducting market research before deciding. Jump online and look at sales data. Consider property type, size and location. Look at sales data that’s no older than 12-months and find a property that’s similar to yours. Then review sales prices.
- Determining whether it’s a buyer’s or seller’s market. A buyer’s market occurs when there is more than 6-months’ worth of supply on the market. A seller’s market, on the other hand, is when there is less than 6-months’ supply on the market.
It’s also wise to explore your finance options before entering the market as this may influence your decision. Finance options for those looking to buy before selling their existing property include:
- An existing home loan increase. If you have equity in your home, then you may be able to increase your existing loan to cover your new home. Then, you can pay off the balance after selling.
- Bridging finance. A short-term loan of up to 12-months, bridging finance covers the deposit for your new property. Then you pay this off after your home sells. However, this finance option can be more expensive than others.
- Deposit guarantee. Also known as a deposit bond, this option means you can secure the deposit for your new home. Which, in turn, enables you to secure your loan for your new property.
- Self-funded deposit. If you have enough savings then you can take out a new home loan. You can then borrow the balance. This choice gives you greater flexibility.
Before you sign on the dotted financial agreement line
While making your next move can be a delicate and stressful dance, it is always important to consider your personal and financial circumstances carefully before signing off on any financial decision.
Always look closely at loan features, conditions, structures and costs to help avoid any pitfalls. For instance, some lenders need regular payments for new and existing debts. Other lenders, however, may add the new debt’s interest payments to the next home’s loan balance. This possibility lessens payment until your first home sells.
Whichever option you select, it needs to suit you. Plus, it needs to let you get on with life without putting you under unnecessary pressure.
Words by Melanie Hearse
This article was originally published as Buying Before you Sell in June 2018. It was updated by Melanie Hearse in February 2021.
- Buying Before You Sell | eChoice.com.au
- Should you sell before you buy your next home? | Westpac
- Should I buy or sell first? | Realestate.com.au
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