Timing is often a challenge when it comes to buying a new home and selling an existing one. In a perfect world, both transactions would happen simultaneously, however this is often not the case.
Here are the pros and cons of selling before buying and buying before selling:
SELLING BEFORE BUYING
Pros
- If you sell your property first, you know the exact amount of money you will have to put towards your next property purchase.
- If you decide to sell before you buy, you are not in a position to sell urgently – so you can wait until you are happy with the sale price before moving forward.
- If you sell your property before buying, there isn’t the need to apply and pay for an additional bridging loan to finance both properties.
Cons
- If you sell before you buy, you may find yourself in a position where there are no suitable properties when you are ready to buy. You could end up having to move out of your home and into a rental property until you find your next property. You would then have the added expense and hassle of having to move twice.
- If you sell first, prices might go up and you can be priced out of the market, or not able to find the home you want for the right price.
BUYING BEFORE SELLING
Pros
- If you buy your next home before you sell, you can avoid moving into a rental property and the hassle and cost of moving twice.
- If you buy before selling, you have the peace-of-mind knowing where you are moving to next. And you can start working on all the details that are needed to move.
- If you are buying first, you can potentially take advantage of a rising market and get more for your money, and the subsequent home sale.
Cons
- If you buy before selling, you may need a bridging loan in order to finance the new property. Interest on bridging loans is more than interest on standard loans.
- If you are buying before selling, you have the extra cost and possible stress of having to pay two mortgages at once.
- Buying before selling may force you into selling your original property at a lower price, if you need the money to meet your loan obligations. Bridging loans must be repaid within 12 months.
- If you buy before you sell and you can’t sell your existing home for the price you expected, you will have to source additional funds to cover the shortfall.
- If you’re making a conditional offer on the property you are buying, you might need to make a higher offer to convince an owner to hold the property while you sort out your circumstances.
Buying before selling and obtaining bridging finance has its risks. Unless you’re clear and comfortable with the risks and you are able to manage two loans for a period of time, selling first is generally more advisable.
If you’re in the position of having sold your property first and are searching for a new home, there are a few things you can try to make the process smoother and minimise the stress (and only have to move once):
- Negotiate a longer settlement period on the sale of your home, so you have more time to find a new house.
- If possible, organise to lease-back on your home from the new owner to give you more time to find a property.
Before you act, talk to a trusted finance professional and real estate agent to make sure you are clear on your options.
