• LoanCaddie

Should I buy before I’ve sold my home?

When you’ve found “the one” for the second time, knowing whether to buy or sell first can be a tricky decision.

It’s time to move from your humble first pad to a larger home. But unlike the first time you bought, you already have a home loan. Do you pack it with you or thank it for the memories and part ways?

When buying a second property with the intention to sell your current home, there are a few options available. And depending on your current financial situation, interest rates and the housing market, that decision can be made for you. Regardless though, you’ll want the best possible price for your current home and a great deal on a new one.

Option 1: Buying a house before selling.

Buying before selling can offer a number of advantages. If the market’s steady or rising, you could save on your next home by locking in today’s prices, while letting the value of your existing home appreciate. Also, if you see a place that you can’t live without, buying before selling your home means you won’t miss out to other buyers.

However, there’s no guarantee your current house will be sold. If there are no buyers or your property is passed in, you’ll need to juggle not one, but two home loans for an indefinite period of time. If you have the funds behind you and a good guaranteed income, this may not be a concern, but for some homeowners, it can cause major financial strain.

And if you start to feel the pressure, you could feel rushed to sell your current home – even accepting a price below your expectations.

There are ways to minimise the chances of this happening. You can make your purchase subject to finance – this clause gives you time to organise a new loan for the property you're buying. You can also negotiate a longer settlement. Let’s say you extend the settlement from 30 to 90 days, this gives you three months to sell your property so you’re financially in the green. Alternatively, you could rent out your old home to guarantee some rental income.

Option 2: Selling before buying.

If you’re not in a rush, you can wait until your home is sold before making an offer on your next place. The advantage here is a clean financial sweep, without the stress of funding two separate properties. With money in the bank from the sale proceeds of your current home, you’ll also have a firm idea of how much cash can be tipped into the new place – and how much you’ll need to borrow from the bank.

Plus, if you want to earn additional income while searching for your next home, you can stash your sale proceeds in a high-interest savings account.

If you plan on taking this approach, be sure to consider where you will live while you find a new home that’s ideal for your needs. Whether it’s couch surfing with friends and family, Airbnb-ing or renting for a while, you need to be able to handle the costs and inconvenience of moving twice. Having these details figured out in advance means you’ll have more time to wait for the perfect home to come along.

Option 3: Buying and selling at the same time.

Sometimes luck comes knocking. If you find the right home and a great buyer at the same time, you might not have to worry about buying before selling your home. This scenario means you could take your loan with you – also known as substitution of security (or loan portability). You just need to arrange both the purchase and the sale to settle on the same day – a great solicitor can help make this happen. To take advantage of this somewhat seamless transaction, your loan amount can’t change. This means you don’t require any extra funds. Loan to Value Ratio (LVR) conditions apply too. Often, if the new mortgage is over 80% of the property value (of the new property) you’ll have to pay Lenders Mortgage Insurance (LMI).

Evaluate what’s best for you.

Purchasing property is a major financial step, and buying before selling your home is not without its risks. By taking the time to properly evaluate all of your options and speaking to a ME Mobile Banker first, buying your second home can be an exciting and financially stress-free experience.