Can I Sell My Existing Home While Buying Another?
More often than not, people have to sell an existing home before they buy another.
That’s because mortgages are far from pocket change, making it difficult for finances to stretch enough to cover two repayments while they wait for their existing one to sell.
But what if you find your dream home before you get a chance to sell? Should you consider buying a house before selling your current home?
There are several ways to make it happen.
The first (and most ideal) lies in simultaneous settlement.
Simultaneous settlement.
While it sounds complex, it simply means that settlement for the sale of your existing home is lined up to happen on the same day as your new purchase settles too.
Doing this avoids a double mortgage, lessens stress and has the added bonus of only having to move once.
But it’s no easy feat, requiring some fancy footwork and a whole lot of negotiation on you (or your agent’s) part to achieve flexibility from both the seller and the person buying your home.
Notoriously difficult to arrange, it pays off when you don’t have to fork out for a mortgage on two properties at the same time (or rent whilst waiting to move into your new home!)
If you do manage to pull it off, the most worrisome risk comes in the form of settlement delays.
Because both settlements are reliant on the other, if one has a problem has the potential to cost you penalty interest, and - at worst - lose your deposit!
So what’s your next best option?
Well, in theory, there are two.
Bridging loans or settlement clauses…
Bridging loans, or ‘bridging finance’.
The first, a bridging loan - also known as bridging finance - exists to do just what it suggests… ‘bridge the gap’ financially between selling your current property and paying for your new one.
It comes in the form of a short-term loan, and can usually be arranged quickly if necessary.
A huge advantage of bridging finance is that it gives you the freedom to purchase that dream property without the stress of having to sell your existing home hastily.
When there’s less pressure to sell, you won’t have to give in to tough negotiations and could end up achieving a better price for your property.
But there are drawbacks too.
Firstly, interest rates on bridging finance are often higher than a typical home loan, so if your home takes ages to sell, you could be up for a fair bit of interest.
Secondly, you run the risk that that your home may not sell for the price you expected. This could leave you out of pocket, with a larger residual mortgage and higher repayments.
And finally, if you don’t have significant equity in your existing home, you may only be approved for bridging finance if you have a large-ish cash deposit. Many banks require up to 20% of the ‘peak’ amount - which is the combined total of your existing mortgage and the new one.
Settlement clauses.
If you find a bridging loan isn’t right for you, there’s still hope - you can always try your luck with a ‘subject to sale’ clause included with your offer to buy.
This simply means that your offer is dependent on you selling your home before the deal can be done, and usually includes a deadline for this to happen.
Infinitely more effective when the market is slow (and there are less buyers around), this strategy relies on the vendor accepting an offer with conditions and taking a risk themselves.
The biggest problem with this? Your offer may not be the only one the vendor has received.
If it is, excellent - the vendors will likely consider it.
But if it’s not - and the other offers they’ve received don’t include a catch - yours may be overlooked in favour of a more solid deal. Even if they’re for a lower amount.
From a vendors perspective, certainty usually trumps risk any day.
And in a fast-paced market where there are plenty of buyers offering cash unconditional, this is a less than ideal approach.
Even if the vendor does accept, the risk is that your home doesn’t sell in the required timeframe and you miss out anyway.
Ultimately, there’s no ‘perfect’ way to manage the process of selling your home while buying another.
Regardless of how you go about it, things don’t always go to plan, so it’s best to be prepared for anything.
Most importantly, understand your personal situation. Be realistic about how long you think it might take to sell your existing home and what price you might achieve.
Make sure you’ve got your finances in order, know exactly how much equity you have up your sleeve, how much you can borrow and how long you could afford to cover two mortgages if necessary.
Talk to your lender or a reputable mortgage broker to discuss your options and understand what is going to work for you - before you make an offer.
And no matter what, we always recommend engaging the services of a professional real estate agent that has experience in buying and selling properties at the same time.
An agent that’s ‘been there before’ can advise you on the best strategies, help you manage the process, monitor the market for the best buying and selling windows and help with negotiations to get you as close to your goal as possible.
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And if you’d like some expert guidance and support? We’re ready and waiting to answer all your questions!
If you’re just getting started, or looking for more valuable property buying or selling tips, tricks and hints, check out these other handy articles on our blog:
× Which Real Estate Agent is Right For You?
× The 7 Hidden Costs Of Buying A New Home
× Does the Perfect New Home Exist?
And for all the very best property buying, selling or investing advice, why not connect with us - We Connect Property are your local property market specialists with over 21 years’ experience in buying, selling and managing property in southern Adelaide.
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Give us a call on 0403 799 983 today, or drop a line to sales@weconnectproperty.com.au - we can’t wait to chat!
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DISCLAIMER: All recommendations made by We Connect Property are general in nature and not to be relied upon as legal or financial advice. To ensure accuracy, we always strongly recommend seeking independent, professional advice tailored to your specific situation before making any investment or financial decisions.