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 also negotiate a longer settlement. Let’s say you extend the settlement to say 90 days, this gives you a longer time to sell your property. Alternatively, you could rent out your old home to guarantee some rental income, but this will depend on whether the equity in your existing home is required for the new purchase. Finally, can consider a bridging loan which give you up to 12 months to sell your current home but does have conditions too.
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.
The downside, of course, is that you are “out the market” and of course bank accounts are not giving you much of a return on your cash at the moment Also means having to move at least twice.
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.
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 us first, buying your second home can be an exciting and financially stress-free experience.