Selling your house before buying a new one is a big decision. It can affect your finances and living situation. Many people wonder if they should sell first or buy first.
The best choice often depends on your own situation and the property market. Selling first can give you a clear budget for your new home. It also removes the stress of owning two properties at once. But it might mean you need to rent for a while between homes.
Buying first lets you move straight into your new place. You won’t need to rent or move twice. But it can be risky if your old house takes a long time to sell. You might end up with two mortgages for a while. This can put pressure on your finances.
Key Takeaways
- Selling first gives you a clear budget but may mean renting between homes
- Buying first avoids renting but can be risky if your old house doesn’t sell quickly
- Your choice depends on your finances, the market, and your comfort with risk
Understanding the Current Property Market
The Australian property market is changing rapidly. Prices and demand are shifting in different areas. Knowing these trends can help you decide when to sell your house.
Analysing Market Trends
The total value of homes in Australia has grown to $10.7 trillion. This is a 2% rise in just three months and a 9% jump from last year. Some areas are seeing bigger price jumps than others.
City markets often move faster than country ones. Flats and units may sell at different speeds to houses. Keep an eye on sales in your suburb. This will give you a good idea of what buyers might pay for your home.
Timing Your Sale
Selling at the right time can make a big difference to your profit. In a rising market, it might be smart to buy first. This lets you lock in a good price on your new home.
But buying first can be risky. You might end up owning two homes for a while. This can be costly. You’ll need to pay two mortgages and other bills.
If prices are falling, it’s often better to sell first. This way, you know exactly how much money you have to spend on your next home.
Financial Considerations
Selling your house before buying a new one involves key money matters. You need to look at your current home’s value, check your debts, and plan for extra costs.
Assessing Your Equity Position
Your home equity is the difference between your property’s value and what you owe on the mortgage. A higher equity gives you more options. Check your latest property valuation and mortgage balance to work out your equity. If you have $500,000 in equity, you might use $400,000 for a new home deposit and keep $100,000 for other costs.
Use an online calculator or talk to a broker to get a clear picture. Remember, property values can change quickly. Get a fresh valuation if your last one is over 6 months old.
Calculating Debt-to-Income Ratio
Your debt-to-income ratio shows how much of your income goes to debts each month. Lenders use this to decide if you can afford a new loan. Add up all your monthly debts and divide by your monthly income.
For example, if your debts are $2,000 and your income is $6,000, your ratio is 33%. Most lenders prefer a ratio under 36%. A lower ratio means you’re more likely to get approved for a new mortgage. Pay down debts if your ratio is high.
Preparing for Increased Costs
Selling and buying homes comes with extra costs. Budget for these to avoid surprises. You’ll need to pay for:
- Real estate agent fees (usually 2-3% of sale price)
- Conveyancing fees (around $1,000-$2,500)
- Mortgage discharge fee (can be $300-$1,000)
- Moving costs (from $500 for local moves)
New purchase costs include stamp duty, which varies by state and property value. For a $500,000 home in NSW, it’s about $17,835. Don’t forget home and pest inspections, which can cost $400-$1,000 combined.
Save up for these costs well before you sell. This helps you avoid using too much of your home sale profits for fees.
Sales Strategies and Options
Selling your home involves key strategies to maximise your sale price and smooth the process. A skilled agent, smart staging, and flexible offers can help you achieve your goals.
Leveraging a Real Estate Agent’s Expertise
A good real estate agent is worth their weight in gold when you sell a home. They bring market knowledge, negotiation skills, and a network of potential buyers. Your agent can help set the right price based on local trends and comparable sales. They’ll also handle marketing, open houses, and paperwork.
Look for an agent with a strong track record in your area. Ask friends for referrals or check online reviews. Interview a few agents to find one you click with. A top agent may cost more but can often get you a higher sale price.
The Art of Home Staging
Staging your home can help it sell faster and for more money. The goal is to make your space look its best and appeal to a wide range of buyers. Start by decluttering and deep cleaning. Pack up personal items and excess furniture to make rooms feel larger.
Fresh paint in neutral colours can work wonders. Fix any obvious repairs. Add some plants or flowers for a welcoming touch. Consider hiring a pro stager for expert advice. They can bring in furniture and decor to showcase your home’s best features.
Exploring Contingent Offers
A contingent offer means the buyer will purchase your home if certain conditions are met. The most common is a home sale contingency. This lets the buyer make an offer on your place before selling their current home.
Contingent offers can be risky for sellers. There’s no guarantee the buyer’s home will sell in time. But in a slow market, they can help you find more buyers. You might negotiate a kick-out clause. This lets you keep marketing your home and accept better offers.
Consider your timeline and market conditions when weighing contingent offers. Your agent can advise on the pros and cons for your situation.
Loan Options for Bridging the Gap
When buying a new home before selling your current one, you’ll need to explore different loan options. These can help you manage the financial gap between properties.
Understanding Bridging Loans
Bridging loans are short-term loans that can help you buy a new home while selling your current one. They cover the cost of your new property until you sell your existing house.
Lenders calculate bridging loans based on your current mortgage plus the price of your new home. This total is called your “peak debt”.
For example, if you owe $250,000 on your current home and want to buy a $500,000 property, your peak debt would be $750,000.
Bridging loans usually last 6 to 12 months. During this time, you might only pay interest on the loan. Once you sell your old home, you use the proceeds to pay off part of the bridging loan.
Home Equity Line of Credit (HELOC)
A HELOC lets you borrow against the equity in your current home. It works like a credit card, allowing you to draw funds as needed up to a set limit.
You can use a HELOC to:
- Make a deposit on your new home
- Cover moving costs
- Pay for renovations on your new property
The main benefit of a HELOC is flexibility. You only pay interest on the amount you use, not the full credit limit.
Securing a Second Mortgage
A second mortgage is another loan you take out while still paying off your first mortgage. It uses your current home as security.
Second mortgages often have higher interest rates than first mortgages. This is because they’re riskier for lenders.
You can use a second mortgage to:
- Fund the deposit on your new home
- Cover other buying costs
Remember, you’ll need to make repayments on both mortgages until you sell your old home.
The Buying Process
When using a bridging loan or other finance option, the buying process changes slightly:
- Get pre-approval for your chosen loan
- Find your dream home and make an offer
- Finalise your loan
- Settle on your new home
- Move into your new property
- Sell your old home
- Pay off the bridging loan with the sale proceeds
This process lets you buy your new home without the pressure of selling first.
Managing Transitional Challenges
Buying before selling can create some challenges:
- Paying two mortgages: You might need to cover repayments on both properties for a while.
- Higher costs: Bridging loans often have higher interest rates than standard mortgages.
- Selling pressure: If your old home doesn’t sell quickly, you might face financial stress.
To manage these challenges:
- Budget carefully for all possible costs
- Consider renting out your old home while trying to sell
- Be realistic about your old home’s value to encourage a quick sale
Recognising the Benefits
Despite the challenges, buying before selling has several benefits:
- You can take your time finding your ideal home
- There’s no need for temporary housing between properties
- You avoid the stress of trying to coordinate settlement dates
- You can move on your own schedule
- You might get a better price for your old home without time pressure
These benefits can make the process smoother and less stressful for many buyers.
Frequently Asked Questions
Buying and selling property involves many important decisions. These questions cover key aspects to consider when timing your property transactions.
What are the advantages and disadvantages of selling my property before purchasing another?
Selling first gives you a clear budget for your next purchase. You avoid paying two mortgages at once. But you may need temporary housing between sales.
Market timing can be tricky. You could miss out on rising property values if you sell too soon.
What are the tax implications involved when purchasing a new property prior to selling my current one?
Capital gains tax may apply if you keep your old property as an investment. You might lose some main residence exemption benefits.
Stamp duty is payable on the new property purchase. This can be a large upfront cost to factor in.
How can I make an offer on a new property conditional on the sale of my existing home?
Ask your agent to include a “subject to sale” clause in your offer. This lets you back out if your current home doesn’t sell in time.
Be aware that sellers may be less keen on conditional offers. You might need to offer a higher price to compete.
What strategies are available for buying and selling property simultaneously?
Bridge loans can help you buy before selling. They’re short-term loans to cover the gap between purchases.
Rent-back agreements let you lease your old home from the new buyers. This gives you time to find and move to a new place.
Are there any financial penalties for selling a property within a year of purchase in Australia?
There’s no specific penalty for quick sales. But you may face higher capital gains tax if you sell an investment property within 12 months.
Some lenders charge fees for paying off mortgages early. Check your loan terms for any exit fees.
How does one navigate buying a new home while waiting for the current house to sell?
Get your current home valued and listed early. This gives you a realistic budget for house hunting.
Look into bridging finance options. These can help you manage two properties temporarily.
Consider making offers subject to the sale of your existing home. Be prepared for sellers to prefer unconditional offers.
