If you’re thinking about buying a new home, you may need to decide if you should sell your current home first.
You might make an offer on a beautiful new home – only to find that you’re not able to get the price you want for your current home. Or someone may want to purchase your current home but you haven’t found somewhere new to live.
So, this begs the question; “should you buy a home before you sell?”
In this article, we explore some important points to weigh up.
Selling your current home before buying is the least risky path because you know how much money you will end up with, ensuring you’re not going to overspend on your new home. Plus, selling your existing home first gives you more buying power because you will have the money from your sale ready for when you do find the right home.
It’s typically easier to get approval for a new home loan since you won’t potentially have two mortgages to pay at the same time.
Selling first would mean you might have to rent or stay in short term accommodation or live with a family member until you have bought a new home – this is usually more difficult; however, it can also be beneficial as you may be able to purchase back into a different market when you find your next home.
Another option is to request a longer “settlement” timeframe for the sale of your existing home. This allows you some more time to find a new property.
Buying a home before selling will make moving your belongings a lot simpler. It will also give you time to get your old home spruced up ready to sell while you are not living there. This path is best if you have already paid off your mortgage on your existing home.
If you haven’t completely paid off your existing 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 high debt-to-income ratio. If you have accumulated usable equity in your current property, you may be able to use this to purchase your next home.
Another drawback of this approach is that you could feel under pressure to sell your existing home as quickly as possible and may end up accepting a lower price.
Also, another potential risk is that the market softens in between and you end up selling your current home at a price significantly below what you anticipated.
It’s impossible to predict how long your present property will stay on the market before it gets sold.
Understanding Bridging Finance
If buying a home before you sell is your only option, you can explore “Bridging Finance.” This is a short-term loan that allows you to temporarily own both homes at the same time. It allows you to make loan repayments as normal until your existing property gets sold.
This type of loan often has relatively high-interest rates or fees and you might end up paying penalties if you’re not able to sell your house in the allocated timeframe.
Keep in mind that some lenders will require you to have significant equity in your existing home before they approve a bridging loan. Our advice is to discuss your options with your financier prior to deciding to buy or sell.
Whichever path you choose, it’s important that you do your homework first, evaluate your own financial position to minimise the stress and risk of buying and selling.
Here at Elanora Realty, we have over 20+ years of experience selling homes in Elanora and the surrounding suburbs, so we know what it takes to get the best results. If you need any advice, please don’t hesitate to get in touch!