Questions to consider
Your decision to sell first and then buy your new home should be based on your current equity situation and how fast you can sell your current home. In a “hot” market, a “hot” property is sure to sell fast – but don’t assume that your property will attract an immediate buyer.
Do your research to get a realistic estimate of the potential selling time. The other factor to consider is how long it will take you to find your next home.
You don’t want to be left homeless and in limbo while you search for the perfect property. Of course, you can only estimate how long it will take to sell your home and find a new place to live.
Whatever the market is like, the process can be much quicker – or slower – than you anticipate. So you also need to consider the backup support you have in place.
For example, could your family give you a place to stay while you are between houses? Or could they lend you enough money to make an offer on the perfect house before your current home is sold?
Your Financial status
Generally speaking, selling first is a suitable option if you have little to no equity, or if the property will take some time to sell, either because the market is slow or because the property is unusual and will only attract a niche market.
This way, you are not caught in the situation of having two mortgages, and you can purchase your next home with an established budget based on the sale of your last home.
If you have significant equity in the current home combined with a healthy income, you can afford to balance your payments if you buy first.
Simultaneous Settlement
This is when the sale of your previous home and the purchase of your new home are processed simultaneously.
So the money from your sale is instantly transferred into the purchase of your next home. One way to achieve this is by selling your home with a long settlement period of up to six months.
This gives you time to look for a new property, knowing that the payment from your previous home is available for the purchase.
You can include a clause allowing for the settlement to be brought forward in the event you find a home within that time frame.
You can also purchase a new home with a long settlement period, giving you extra time to sell your current home.
However, this is more risky because if you fail to sell your home within the specified period, you could potentially lose your deposit on the new house.
Problems can develop on the day of simultaneous settlement if one of the settlements is delayed for some unforeseen reason, which could result in the entire move being rescheduled for a few days later.
This in turn can trigger other challenges such as additional expenses in penalty interest. If the delay drags out, you may risk losing your deposit.
Buying first with a bridging loan
If you owe around 60 percent or less of your home’s current value, you may have enough equity to qualify for a bridging loan.
A bridging loan allows you to buy your next home while keeping your current one until it sells.
To be approved, you need to show that the equity in your existing property will be enough to clear the loan once the sale settles.
This structure often suits people downsizing, for example, retirees, because the new property is usually worth less than the one they are selling.
Because bridging loans can accrue substantial interest, they are usually not ideal for anyone upgrading to a more expensive home. In those cases, the interest costs can become difficult to manage.
It’s the ultimate dilemma for any homeowner planning to move to a new property: do I sell or buy first?
You don’t want to sell unless you have somewhere else to live, but you don’t want to buy unless you have the money from the original home.
Whichever way you go, there will be some stress involved, so it’s essential to weigh the pros and cons of each option to determine which is most suitable and practical for your circumstances.