In a perfect world, you would sell your property first before buying another one, and you would arrange the settlement dates for both properties, to be on the same day. However, sometimes, it is not a perfect world, and you have to consider other options when buying and selling.
There are several options you can consider when buying and selling, depending on your risk comfort levels.
Option 1 – Buying First
A popular option, is to make an offer on the property you want to buy conditional of your existing home selling. The risk with this option, is that you don’t know how long it’s going to take to sell your home.
In these situations, the vendor of the property you’re interested in purchasing, will usually include a “cash out clause” which means they can accept another more straightforward offer at any time.
This type of offer may not be attractive to vendors as they become dependent on you selling your property before they can finalise their own.
This option also won’t work for properties that are being sold at auction, as you need to be an unconditional buyer when purchasing at auction.
Option 2 – Bridging Loan
If you’re looking to buy first before selling your existing property, you may want to approach a Mortgage Adviser to see if a bridging loan is a possibility as a backup option if your house doesn’t sell within the timeframe required.
A bridging loan is a short-term loan that allows you to purchase a new property before you sell your existing one. In these situations, the bank will take security over both properties and lends against these properties until the sale and purchase process on both properties is completed.
This can be expensive, as for a time, you’ll be servicing two loans simultaneously, and you’ll need to be able to demonstrate to the bank that you are able to service both loans.
Option 3 – Selling First
This is the least risky option and will give you certainty on how much you can spend on your next property. The downside, is that you may not find a suitable property before your current one settles, meaning you may need to find short-term rental accommodation while you wait for your ideal home to come along.
For this option, we recommend that you contact your bank to see if there will be any penalties for repaying your mortgage early (ie. repayment of cash incentive, break costs etc), as potentially you may be repaying your loan in full prior to purchasing your new property.
Option 4 – Buying & Selling at the same time
Lastly, you could choose to put your home on the market while actively looking to buy your next home at the same time. In this situation, you could also look to have both properties settle on the same day, so that you can keep your existing fixed terms (this is ideal if you are currently fixed on lower interest rates than what is currently available) and the bank can simply transfer the security of your lending to the new property.
If you’re considering buying and selling, we recommend that you speak with the team at Wayne Henry Mortgages to ensure you understand your financial options and to help you get preapproved for finance for the new property.
Want to find out more?
The team at Wayne Henry Mortgages are available to chat anytime about buying your next home.