If you're looking to buy and sell property at the same time, deciding which to do first can be a difficult choice. Buying and selling property are both complex processes and the implications of your decisions aren’t necessarily as straightforward as they seem.
Some may think selling first is the safer option, but buying first has a range of advantages that may only become apparent over time.
Here we'll run through your options when buying and selling at the same time and explain why buying first can be the preferred route.
Typically, your options are to buy first, sell first or try to arrange a simultaneous settlement. A simultaneous settlement means the settlement of the sale of your existing property and of the home you’re buying happen on the same day.
Some pros and cons for each option are:
Whichever path you go down you'll need to have a strong understanding of how to sell and buy a house at the same time. These can be complex and stressful experiences on their own, particularly for first-timer sellers still learning the sales process.
Buying a house before selling is an appealing option as it gives you time to find the right home without rushing the sale of your current one. It’s also beneficial for those who may have stumbled across the home of their dreams and want to snap it up.
Having a home ready to move into makes for a smoother experience. Selling first means you may need to organise temporary accommodation or storage if you’re staying with family or friends. Finding a short-term rental property can be challenging, especially in such a tight rental market. There’s a danger you’ll have to sign a 12-month lease which will cost to break once you’ve bought your new house. When you buy before you sell, you simply move from your old home to your new one and can settle in straight away.
Another advantage of buying first is being able to control the sales timeline with the option to wait for the highest possible offer. You'll have extra time to make minor renovations or repairs and to stage your home without the stress of keeping it pristine for inspections. A relaxed approach to settlement can also help attract more potential buyers.
For many sellers, buying before they sell is only possible with bridging finance. A bridging loan allows you to borrow the funds to purchase your new home without the financial burden of repaying two standard term mortgages at once. It can also include additional expenses of completing your new purchase such as transaction fees and stamp duty, meaning potentially fewer upfront costs.
Bridging finance can be a lifesaver if you’ve found your ideal home but aren’t otherwise able to make an offer without selling first. With a bridging loan, you have the opportunity to secure your purchase rather than watching it slip through your fingers.
Selling before you buy is the most typical approach, but it can be risky. It may take longer to find your new home than expected and in a rising market, this could mean you end up paying more than if you’d bought earlier. You’ll also need somewhere to live if you haven’t bought before your settlement period ends.
Many view selling first as a ‘safer’ option as they know how much they can spend on their next property. This may be true in a buyer’s market when prices are falling and there are plenty of available homes for sale. In a seller’s market, you may be caught out by limited choices or be priced out of your dream home. Buying at current market prices and selling later for a potentially higher price can be a more attractive strategy.
Bridging finance may be an option for those who feel buying first is out of reach. They may be unable to service two mortgages or secure another home loan as their debt-to-income ratio is too high with an existing mortgage. A bridging loan can also help sellers upsize, allowing them to purchase a new home that is more expensive than their current one.
Bridging loans are typically interest-only loans during their term. Typically, the lender takes over your current mortgage while financing the purchase of your new home. The total amount of the loan is known as ‘Peak Debt’ and includes the balance of your existing mortgage, contract purchase price of your new property and associated costs.
In some circumstances, it’s possible to accrue and add the interest of a bridging loan to your Peak Debt, meaning you only start paying it once your existing home is sold. This option can offer a way to add more savings towards your deposit, however it will likely incur a higher interest rate and a larger repayment at the end of the bridging period.
Some pros of bridging finance are:
· Avoiding the complexities and potential risks of trying to arrange a simultaneous settlement.
· Not having to wait until your house sells to find and purchase your new home.
· Having time to hold out for the highest possible offer on your existing property.
· Living in your new home while your existing home sells, saving on rental and repeat moving costs.
· Having the freedom to track down your dream home without having a fixed window of time before your sold home settles.
It’s also important to be aware of some potential downsides to bridging finance:
· Interest on a bridging loan is higher than a standard term home loan.
· Bridging finance incurs additional fees and charges on top of your existing loan.
· Typically, there’s no redraw facility on bridging loans.
· Interest will build if your home takes longer to sell than expected, making the loan more expensive over time.
· A larger loan to repay if your existing property sells for less than anticipated.
· Getting approval for bridging finance can be difficult and you’ll generally need to have saved a 5-10% deposit for your new home purchase.
For anyone looking to buy and sell property, it’s best to seek expert advice specific to your situation. Bridging loans are one option for buying a new home without having to wait for your old one to sell. These loans ‘bridge the gap’ between receiving funds from your sale and buying your new property, so you can make an offer on your dream home at its current market price. Once bought, you can move straight into your new home and sell your existing one in your own time.
Still not sure if you're in a position to be able to buy first and sell later? We're here to help. A Doorsteps Finance broker can give you honest advice and help you understand whether bridging finance is a good option for you. Chat to a broker
ANZ, 'Buy first? Or sell first? It’s the classic real-estate conundrum'
NAB, 'Bridging loans: should you buy or sell first?'
Realestate.com.au, 'Should I buy or sell first?', 10 May 2019
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