Timing your purchase with the sale of your existing property can be complicated and it is often difficult to know what should come first.
With the additional challenges of COVID-19 restrictions and the economic downturn, make sure to do your homework, weigh up the pros and cons, factor in your individual and market conditions and talk to professionals to help provide clarity on what is best for you and take any stress out your decision.
To assist you in considering your options, here’s our tips on buying before you sell.
Get clear on your finances
According to Finder, the number one consideration on whether to buy before you sell is your finances. There is always going to be uncertainty on whether your property will sell as quickly as you had hoped but equipping yourself with a plan and the right tools will result in a smoother process.
Assess your financial situation
Plan ahead and consider the following when deciding whether this is right for you and what you need to do before jumping in:
- Covering two mortgages – By working out the costs and factoring in your other expenses compared to your income, you can see whether this is a feasible option for you.
- Knowing your purchase costs – Know exactly how much your new home will set you back, and make sure to include stamp duty, mortgage title transfer and any conveyancing fees.
- Setting yourself a budget – If the cost of covering two mortgages is looking tight, then assess how you can achieve this by reducing your non-essential expense and free-up additional cash flow.
- Having a Plan B – Having a contingence plan in place if your first home doesn’t sell, like renting out your first home, so you can cover costs until the right buyer comes along.
Exploring financial options
If your home doesn’t sell at the same time as buying, there are many financial pathways that can assist you in this process. Be sure in check in with a financial advisor or lender about the following:
- Home loan increase – If you have equity in your property, then you may be able to increase your existing loan to cover your new home. Once you have sold your first home, then you can pay off the balance.
- Bridging loan – You can access a bridging loan for when and if you need finance to purchase a second property with the intention of selling your current one. Typically, bridging loans are interest only payments and have limited terms so can be a good option if you get stuck.
- Deposit guarantee / Deposit bond – This option can help you secure the deposit for your new home which, in turn, enables you to secure your loan for your new property.
- Self-funded deposit – If you have enough savings, then you can take out a new home loan and borrow the balance, giving you greater flexibility.
“Whether you are buying your first property or buying before you sell, getting your finance in order is the crucial first step, so chat with your financial advisor or lender to get the best advice for your individual financial situation,” said Peter Hanscomb, CEO of Belle Property and Hockingstuart.
Research the property market
Once you have worked out your financial position and that buying before you sell is the right thing for you, you should then consider what’s happening in your local real estate market and the state of the wider property market.
Knowing your local market
Depending on where your property is located, there can be a range of factors that could contribute to whether there are active buyers in the area and how long your property will be on the market for.
“When deciding if you should buy before you sell, you should understand what is happening in the area you are selling in,” said Peter.
“Get a realistic estimate of how long it might take you to finalise a sale by consulting with local real estate agents who can often offer a free property appraisal. They can advise on the average days on the market, give you an estimate on your property’s selling price, and how you can get ready for sale."
Understand the current state of the property market
Now more than ever, it is important to be aware of what’s happening in the wider housing market and how this could affect your ability to sell your home.
The current market is proving to be an excellent time for people who have been on the fence about making a lifestyle change. Realestate.com.au recently reported an increase in people looking to properties that are more isolated, off-the-grid, or based in regional areas.
“People are naturally going to feel nervous about the current property market and economic downturn, it’s to be expected and we can appreciate that,” said Peter.
“But some positives are arising that we have seen increase in buyers and vendors being flexible with their settlement terms, which is great news for those looking to buy at the same time as selling,” Peter added.