It’s time to upgrade the family home. Should we buy or sell first?
For most of us knowing when to upgrade the family home usually becomes pretty obvious. You might have a baby on the way, or simply run out of space to fit life into where you’re currently living. What happens next once you’ve made the decision to upgrade? Often the biggest question you will be facing is whether you should buy first and then sell or the other way around.
How much is it going to cost?
One of the major factors in any decision you make is going to be the associated costs. This includes the cost to sell the existing property including marketing and real estate fees, or whether you’re going to keep the property as an investment – you need to consider all of the expenses that are attached to keeping or selling the existing property. Try our Property Selling Cost Calculator to estimate the associated selling costs.
The next expense to consider is going to be the costs associated with buying – can you afford to purchase where you want to? Try our Stamp Duty Calculator and Property Buying Cost Calculator to estimate the associated purchasing costs. Are you going to require another home loan and if so, how much can you afford to borrow? Try our Borrowing Power Calculator to get an indication of how much you can afford.
Over the years a lot of lenders have changed how they assess a borrowers income and expenses, meaning that what you can borrow now may be vastly different to when you first purchased your home. Before you dive in and start bidding at auctions, we strongly recommend speaking with your trusted Mortgage Broker. They will be able to do a thorough financial assessment and have an in-depth discussion with you about your current lending situation and financial structure.
Option 1 - Sell first, buy after
Lots of people rely on the equity they’ve amassed on their current property in order to cover the deposit on their next property. If your financial situation indicates that you need these funds there are a couple of options available to you.
The first is to list and sell your property prior to your next purchase, you then to make an offer on the next property once you have the settlement funds available in your bank account. This could mean renting somewhere else or staying with family - however this will likely result in having to move your belongings for a short amount of time. If you would like to avoid moving your belongings for a short amount of time, other options include renting your current property if the new owners agree or negotiating a longer settlement to allow you time to find your next home.
Another option is to list your current property, get your pre-approval in place subject to the sale of the existing property and commence looking for your next home with the expectation that you’ll sell your current home before settling on the new one. This option can be difficult as there is no guarantee you will be able to sell or find your dream home within the required timeframes.
Option 2 - Buy first, sell after
If you decide to buy first, the biggest hurdle is the financial burden of potentially paying two mortgages at the same time. Some houses take a little longer than others to sell, especially depending on the market conditions in the area you’re in, and you probably don’t want to be in a rush to sell – you want to maximise the return on the property. If you aren’t able to time the sale of your old property with the purchase of the new one, and are unable to access the equity, you may find that you need a bridging finance facility to purchase your new property.
Bridging finance can be very expensive compared with a standard home loan, however we can help you should you find yourself in this scenario. This option can also trigger a minimum sale price that you will need to achieve to ensure the upcoming purchase is viable. We can help you determine whether it’s achievable and plan ahead to ensure that the sales strategy fits your financial needs. The benefit of this option is that the purchaser is in no rush, this gives you the opportunity to be very selective when it comes to identifying your dream home.
Option 3 - Settle both properties at the same time
If you’ve been fortunate enough to successfully make an offer on a new property and had a buyer sign a contract for your existing within days of each other, then you are in a great position. Lots of people choose to time their settlement day so that the sale of the old property coincides within days of the purchase of the new property. If you’ve used the same conveyancer for your sale and purchase it should be fairly straightforward for them to negotiate and time these settlements to your advantage. This is the ideal scenario, as it allows you to settle both the sale and purchase of the new property on the same day - you don’t end up with an overlap requiring you to pay two mortgages at once.
Seek out professional guidance
Coordinating any of the options above can be a real headache, it’s helpful to have someone assist with the juggling act. Not only does the upgrade process take up a lot of time hosting open for inspections, but you’re also going to be attending them. This will require you to know your financial position inside and out, not to mention the legal and administration aspects that require your attention. Contact your trusted Mortgage Broker if you’re considering buying and selling around the same time.
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