In an ideal world it would be so easy if we could sell our current home at precisely the same time as buying the next one. Unfortunately, moving rarely works out this way - most homeowners have to make a key decision about whether to sell first or buy first. There are issues to weigh up 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 whether the price will cover the cost of the new place. 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 outlined in our table below.
Buy or sell first? Weighing up the pros and cons
|Selling first||Buying first|
|You can afford to hold out until you’re happy with the price offered for your current property||You can take the time to home hunt and pick up your ‘dream home’ when you find it|
|You may avoid the expense of bridging finance||If your current home takes longer to sell than expected you may have to arrange a bridging loan (see below) to fund owning the two properties at the same time|
|You will have a clear spending limit for your new home||You don’t have certainty about what your current property will sell for, and this can make it harder to set a clear spending budget on the new property|
|It may be possible to extend settlement on the sale until you find your next home. However you run the risk of renting temporarily if you don’t find your next home before settlement||You have greater certainty that you’ll only need to move once. Though be wary of the possibility of being forced into accepting a lower price on your current home so you can sell in time for settlement|
|If market values are rising your next home may be less affordable than you planned for||In a rising property market you may be able to command a higher selling price for your current home, and secure better value on the new place|
If you choose the ‘buy first’ path you may need to take out a bridging loan to cover you for the time that you own both your current – and new, homes.
These loans work in much the same way as regular loans though with minor variations. Like normal home loans, a bridging loan offers a choice of fixed or variable rates as well as features like interest-only repayments. What makes bridging loans a little different is they tend to:
- Have short terms of 6 to 12 months
- Have a slightly higher rate and fees
The rate you pay on a bridging loan will depend on your situation and how risky the lender considers it to be. If you aim to borrow less than 80% of the value of both properties combined, it could mean avoiding Lender’s Mortgage Insurance (LMI).
When you’re doing all the sums bear in mind:
- You might not get the price for your current home that your agent originally quoted
- You still need to face the costs of moving as well as the expenses of buying and selling property
A Deposit Guarantee is a substitute for the cash deposit required when purchasing a residential property. You can choose to use a Deposit Guarantee for all – or just part of your deposit, up to 10% of the purchase price.
This makes Deposit Guarantee a handy option because you can still sign a contract to buy the property of your choice when you find it. This situation often applies when you are relying on the sale of your existing property to fund your next home. As long as you have the funds available at settlement, a Deposit Guarantee puts you in the position to secure the right property including the deposit.
If you have sold your existing property and the funds are not yet available for the deposit on your new home, a Deposit Guarantee can still help you secure the purchase of your new property. It does not remove your obligation to pay the deposit; it just delays payment of the deposit amount until settlement, and allows you to hold on to your funds for a bit longer.
If you feel a Deposit Guarantee could be helpful for your circumstances, talk to an Aussie Broker about how to apply.
Planning for the costs of moving
Moving home is a significant step and it is important to plan ahead for the cost so that you aren’t faced with a last minute scramble for funds – something that could mean taking on more debt than you initially planned.
The costs of moving includes:
- Stamp duty on the new property
- Loan refinance fees
- Agent’s fees and commission to sell your current home
- Legal fees and conveyancing costs for both buying and selling
- Building and pest inspection reports on the new property
- Removalist costs
- Connection of utilities – internet, electricity
- Updating your home and contents insurance
Stamp duty – be prepared
There are two types of stamp duty you need to be aware of:
- Duty for the property transfer
- Duty for the registration of your mortgage
Stamp duty is charged by state and territory governments so the amount you will pay depends on where your chosen property is located. It will also vary according to the purchase price of the property.
In some states/territories, stamp duty concessions may be available to certain purchasers, for example, if you are building a new home. Even with concessions in place, stamp duty can significantly add to the cost of a property so be sure to factor it into your budget.
You can calculate how much duty you may need to pay by using our handy Stamp Duty Calculator.
For more information take a look at the website of the revenue office in your state or territory: