Exploring your finance options
Moving would be so easy if we sold our current home at the same time as buying a new one. But things don’t always work out that way. In fact there can be a whole range of reasons why you buy a new property before selling your current home.
Your home may take a little longer to sell than expected, or you could come across your ideal property before even placing your present home on the market.
If you do opt to buy before selling, it’s good to know there are finance options available to secure your new home while still managing the mortgage on your current property.
Talk to your current lender
An important starting point if you have purchased a new home before selling, is to talk to your lender. You may be able to secure an increase your existing home loan to cover the amount required for the purchase of your new home.
A bridging loan can be another solution when you face a timing gap between the sale of one property and the purchase of another.
This type of loan is generally used for short term periods – usually six to 12 months. You simply take out the bridging loan to fund the deposit on your new property, and repay the balance when your current home is sold and the deal settled.
Bridging loans do tend to be slightly more expensive than a regular mortgage but they provide the benefit of time. You are able to wait and achieve the best possible selling price for your home rather than being in a position where you are forced to accept a lower offer.
A deposit guarantee, also known as a deposit bond, offers another financing option. Instead of putting down a cash deposit to secure your new home, you take out a deposit guarantee provided by a lender. It can be a cheaper alternative to bridging finance and it gives you, the buyer, reassurance that the new property will be held until you settle your own home.
Pitfalls to be aware of
It pays to be aware of some potential downsides when you buy before you sell. Most notably you may not achieve the price you had hoped for on your current home. Remember also that buying and selling property comes with a range of costs like stamp duty and legal fees. These need to be factored into your buying budget. Just as with the purchase of your first home, don’t commit to buying a property you cannot comfortably afford.
Mortgage Choice can help
Speak with your Mortgage Choice broker for more information on the range of finance options available if you buy before you sell.