Timing is everything when you’re looking to move into a new home. And we’re not just talking about what the market is doing (although that’s pretty important). We’re talking about what happens when you already own a home, but you think it’s time to move on and purchase a new one. The big question is: should I sell before I buy my new home?
The decision to buy or sell your home first isn’t easy. Traditional wisdom (otherwise known as your parents, best mate, or even a chatty taxi driver) suggests you should always sell your existing home first. Makes sense – then you’ve got all your ducks in a row and you can take the time you need to find the right home. But maybe you don’t want to wait or you’ve just found your dream home and don’t want to miss out. What then? You probably want to know how to buy a second home before selling the first.
Here are some options you may wish to consider:
Option A: Arrange simultaneous settlement
This is where you arrange with your respective real estate agents to settle on the same day between the home you’re selling and the home you’re buying. This approach requires some finesse and negotiation to get the timings right; you may need to request a longer settlement period on the home you’ve purchased.
Option B: Use your existing equity
If you have enough equity in your current property, you may be able to draw down a deposit in order to purchase your new home. Have a chat with your lender to understand what equity may be available.
Option C: Explore bridging finance
Bridging finance is a loan that helps you bridge the gap between receiving the money you get from selling your existing home (which you haven’t sold yet and are still paying a mortgage on) and buying your new home.
However, it’s worth bearing in mind that to get bridging finance, you’ll likely have to show evidence that you can repay the bridging finance interest costs during the period between buying and selling (as well as after). So you need to be across your financial position and factor in the bridging finance rates of your loan. It can be a little risky - it relies on you selling your existing home, at the right time, for the right price. Not all lenders offer bridging finance, and fewer are approving it than they used to.
Option D: Borrow from a family member
If you have the option, you may wish to ask a family member to lend you the deposit. This will help you purchase your new home before selling your existing home.
Is it ever better to buy first?
It could be. Take a look at the property market: is it a buyers’ market or a sellers’ market? If it’s an upward trending market, then buying first might be the better option for you. Prices might keep rising while you wait to sell.
You should also consider the desirability of your current home. Is it likely to sell quickly? If it is, that obviously helps reduce your risks. If the market is slow, it might take you a while to sell. Or you might feel forced to accept an offer under market value to ensure a sale in time.
So, should you buy or sell your home first? The pros and cons
It’s crunch time, so you need to decide, if you’re moving home, do you buy or sell first? It all comes down to your personal circumstances. Let’s take a look at a few quick pros and cons.
Selling first gives you time to find the best buyer and price for your current home. However you will have to wait until it sells before looking for a new home, and that probably won’t happen overnight. And once you do sell, it might take you some time to find your next home, and you might not always get the home you want.
During this time you’ll have to find somewhere else to live (either renting or perhaps living with a family member, which could have its own set of risks!) and somewhere to store your belongings. This can be costly, as well as a hassle.
Life doesn’t always go to plan. You might see your dream home which forces your hand - you simply can’t wait to sell first. If you can access one of the options above and the market looks in your favour, buying your new home before you sell the current one might ensure you don’t miss out.
You might also come across a good deal, like a blue-chip property at a bargain basement price, that makes the risk and cost of buying first worth it.