Should you buy before selling or sell before buying? It’s one of the biggest decisions you’ll need to make when it comes time to move on and buy your next home.
It’s a complicated process, and in many situations you’ll have to juggle the purchase of a new property and the sale of your existing home at the same time. This can throw up all sorts of practical problems, the most obvious of which are the timing and the financing.
Read this guide to understand what your options might look like and the implications of each scenario so you can get an idea of what might best suit your needs.
The main options are to buy first or sell first, but often people try to align their settlements no matter which way they decide to go. Let's look at the pros and cons of all three:
For some people, buying before you sell is an ideal scenario, as it removes a large number of pain points from the home transition journey and puts a seller back in control. Under this approach, you only start the process once you have found that perfect next home.
One of the biggest selling points of buying first is that it allows you to streamline the logistics - you move once from your current home to your new home, and there is no need to find temporary accommodation.
Finding temporary accommodation is often an overlooked piece of the puzzle when selling first. If vacancy rates are low at the time you’re moving, finding a short term lease can be very difficult due to increased competition and demand. Some people may end up signing a 12 month lease and then having to pay to break their lease after they buy their new home.
Once in your new home, you can control the timeline of the sale process for your old home allowing you to maximise its sale price. This might mean taking time for minor renovations or repairs, or staging the property, or even being more flexible on settlement dates to attract the maximum number of potential buyers. And best of all you don’t have to live through the numerous open homes as you’ll already be in your new home.
Buying before you sell does generally mean you will require some bridging finance. If you’ve never heard of bridging finance before, it's a loan to cover the gap between receiving funds from the sale of your existing home and buying your new property. In the Australian market, there are some innovative companies creating solutions for people who are interested in buying before they sell who previously wouldn’t have had this option available to them.
Of course there are uncertainties with bridging finance, specifically buying a new home before you know how much your current home has sold for. This means there is a level of uncertainty on what your residual home loan will be. While obtaining a professional valuation for your current home may reduce some of this uncertainty, controlling the sale process can help you to feel confident you are buying and selling in the same market as an effective strategy for managing this issue.
Selling before you buy is the most common, ‘safe’ option, simply because most people need the cash from their existing home to finance the new property purchase. While it is more common than buying first, it isn’t any less complex.
While selling first may give you certainty in how much you can spend on a new property, it increases the uncertainty in some obvious and not so obvious ways. To start with, selling first means that you will need to find some temporary accommodation while you search for a new home, and unless you’ve got a family member or friend you can stay with, that most likely means spending money on rent as well as having to move a second time.
A less obvious consideration is the length of time it may take to find and secure that next home. The risk here is that you may not be buying and selling in the same market. This could work in your favour in a falling market, however it could also work against you in a rising market. If you stay on the sidelines too long in a rising market you may find that you can no longer afford a home of the quality and standard that you just sold.
As a result, some people end up compromising on that next home, rather than risk waiting too long for the perfect property to come onto the market.
This kind of transaction is typically financed through a standard home loan, and in the Australian market there are a variety of lenders with a range of home loan solutions. With so much choice, it can be hard to know what's best for your situation. Having someone to help you do the heavy lifting on the finance side, like a mortgage broker, can make a world of difference.
Aligning settlements is when you settle on the property you are purchasing at the same time you are selling your current property. It is also sometimes known as dual settlement or simultaneous settlement.
For some people, aligning settlements is their preferred approach as it has a lot of the benefits of buying first, without the uncertainty. However, there are hidden risks and costs in this approach that need to be considered.
Let’s start by highlighting some key questions you should be looking to answer about the whole process. You can generally bucket these into two segments - market questions and finance questions.
If you’re unsure of how to answer these questions, the team at Doorsteps Finance is here to help. Speak to one of our friendly brokers, who can guide you through the entire journey of buying and selling. We work with lenders across the country to find the perfect solution for every individual. We can also help refer you to OpenAgent* to identify local real estate agents to help sell your property.
There is actually no ‘right’ way to manage the process of selling one home and buying another. It all comes down to doing your research, thorough planning, and choosing a strategy based on your circumstances. Make sure you:
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Disclaimer: Doorsteps Finance Pty Ltd ACN 648 541 879 (credit representative no.531036) is authorised under Doorsteps Solutions Pty Ltd ACN 654 334 246, Australian Credit Licence 537369 (together, “Doorsteps”). Doorsteps are not making any suggestion or recommendation about any particular product or service. The information provided constitutes information which is general in nature and has not taken into account any of your personal objectives, financial situation, or needs. Any credit application made through Doorsteps Finance Pty Ltd is subject to approval, terms and conditions, fees and charges.
Disclaimer: Doorsteps Finance Pty Ltd ACN 648 541 879 (credit representative no.531036) is authorised under Doorsteps Solutions Pty Ltd ACN 654 334 246, Australian Credit Licence 537369. Doorsteps Solutions Pty Ltd ABN 60 654 334 246 and Doorsteps Finance Pty Ltd ABN 27 648 541 879 are not making any suggestion or recommendation about any particular product or service. The information provided constitutes information which is general in nature and has not taken into account any of your personal objectives, financial situation, or needs.