Should you sell first or buy first?

In an ideal world you’d sell your current property at exactly the same time as buying your next one—but, unfortunately, it rarely happens like that. Most people have to either sell first or buy first.

There are stresses that come with both options. If you sell first you might feel pressured to buy somewhere that’s not quite right. If you buy first you won’t know exactly how much you’ll get for your current home and if the price will cover the cost of your new one. Plus, you may need to get a bridging loan to cover owning both properties at the same time.

If you’re wondering which order would work best for you, take a look at some of the pros and cons of both options.

Selling first

If you sell your current home before buying your next one you:

• Can wait until you’re happy with a price offered for your current property.
• Won’t need bridging finance.
• Will know exactly what you have to spend on your new home.
• Can arrange for an extended settlement to give you the time you need to find another home.

But be aware, if you sell first:

• You might not find your next home before settlement and then you might have to rent somewhere—and move twice.
• property prices might rise while you’re hunting for your new home—and you could get less bang for your buck.

Buying first

If you buy a new home before selling your current one you can:

• Be certain you’ll only have to move once.
• Spend all the time you need to find your new home.

But be aware, if you buy first you:

• Will have to guess the value of your current home when working out the budget for your next one.
• May be forced into taking a lower price on your current home so you can sell in time for settlement.
• Might have to get a bridging loan to finance owning the two properties at the same time.

Bridging loans

If you follow the “buy first” path you’ll probably need a bridging loan to cover you for the time that you own the two properties.

Like other home loans, you can get a choice of fixed and variable rates and features like interest-only repayments. What makes bridging loans a little different is they tend to:

• Have short terms of 6 to 12 months.
• More expensive.

Whether you’ll pay slightly higher interest on your bridging loan will depend on your situation and how risky the lender considers it to be. Aim to borrow less than 80% of the value of both properties combined, that way you can at least avoid paying lenders mortgage insurance.

When you’re doing all the sums remember:

• You might not get the price for your current home that your agent originally quoted.
• There are a lot of fees, charges and extra costs that come with buying and selling property.

For a rundown of the costs you might come across take a look at the Buyers Guide: Extra Costs.

Continue to information about whether to move or renovate.