Buying your new home: Should you sell or buy first? ????
If you find your dream home while still owning your current property, there are two main options to consider: making an offer subject to selling your current home or securing a bridging loan. An offer subject to sale allows you to avoid the cost and risk of bridging finance, but it may be less attractive to the seller, who has to wait for your property to sell. This approach won’t work for auction properties, as you need to be an unconditional buyer in those cases.
A bridging loan is another option if you need to buy before selling. The approval process is similar to a standard mortgage, with your lender assessing both properties. Typically, the deposit comes from the equity in your current home, but it can be supplemented with cash. The goal is to sell your existing property quickly to minimize the time you're responsible for two loans, as carrying both mortgages can be expensive.
There are two types of bridging loans: open and closed. An open bridging loan means your home has yet to be sold, however, it needs to be sold within a time period and typically must be sold within 6 months. A closed bridging loan, on the other hand, is when your home has sold, but you are moving into your new home, before the settlement of your existing property. Both properties at that point have been sold unconditionally. Closed loans are easier to secure because they pose less risk, but both options can come with high interest costs, as the bridging portion is on a floating interest rate.
To make the process less stressful, it’s important to prepare your finances early. Start by getting pre-approved for a mortgage to understand what you can afford and to set realistic expectations. This will help narrow down your property search and save time. If you're considering bridging finance, consult a mortgage adviser to understand the terms, costs, and risks involved, even if you plan to avoid it. Sometimes, you can even potentially look to hold your existing and new property on review of your financial position.
Some other tips - If possible, extend the settlement period on your new home to give yourself more time to sell your current property. Try to align settlement dates to avoid potential two moves, and potentially two lots of legal bills. Be prepared for the possibility that your sale could fall through or not meet your expected price. Work closely with your real estate agent to ensure contingencies are in your offer, and consider short-term rental options as a backup plan.
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With careful planning, you can confidently navigate the process and move forward with your next home purchase. Please don’t hesitate to reach out with any questions!
Cheers,
Cam
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