Want to buy your next home but haven’t sold your current one?
One of two scenarios may have occurred for you to be in this position. Your house is for sale however you haven’t managed to sell before finding your next dream home; or sometimes it just hits you out of the blue – you take a new route home, you browse through a free magazine in a café, or you’re at a friend’s place and spy it out the corner of your eye – you’ve found a home that must be yours!
In either case, there is a strong likelihood that your current home won’t be sold before you have purchased the new one.
What can you do?
Conventional wisdom says selling first and then buying is the best course of action in the property stakes. But when aesthetics and emotions are involved in the deeply personal process of buying a home, or the timelines just don’t coincide, sometimes you need a way around the practicalities.
The short answer is yes; you may be able to buy your next home before selling your current one. However, the requirements for this kind of financing are quite stringent, with the major hurdle for most people being to keep below an 80% LVR (Loan to Value Ratio) during the period when both properties are being held.
First, take a reality check on the timeframe you might need to sell your current place, based on auction clearance rates and average days on market in your local area.
Then, if your home is not already for sale, get your home prepped and onto the market as quickly as possibly. You won’t have time for big jobs but a property stylist and de-clutter expert may be money well spent to present you home as best you can.
Settlement
Speak to the agent who’s selling your dream home about the settlement options. Explain you’re in the process of selling your current home, however it’s unlikely to be sold by the time the vendor’s are due to sell. Depending on the level of buyer interest in your dream home, and the vendor’s set of circumstances, they may be open to a longer settlement, which will help you buy some time.
Finance
First up, there’s the deposit on the dream home to think about. You’ll need a deposit for the new property either from cash or by accessing equity in your existing property.
Buying before selling gives rise to the possibility of servicing two mortgages for a short time, assuming your lender assesses you as being able to service two. Combining two mortgages together isn’t the only means of finance on offer, even if one of them operates as interest only.
Bridging Finance Or Loan
A bridging loan can help during the period where you’re in limbo with two properties.
It operates on the assumption that the ‘maximum or peak debt’ you have during the loan is short-term only; most lenders assume six months. (This is why it pays to really think about a realistic selling timeframe upfront).
Quite often the interest payable on the peak debt can be capitalised. This means it is charged and accrues, but you needn’t make repayments during the bridging period. You can simply pay down the total peak debt and accrued interest costs upon the sale of the property. Despite that, it’s a good idea to make the repayments you can manage during the bridging period. Otherwise at the end of six months, a good portion of your sale proceeds may be eaten up by the accrued interest charges on the peak debt.
Before you qualify for a bridging loan, lenders will want to see that you can meet an 80% LVR during the peak debt period, beyond any equity you use for your new home deposit. It’s best to chat to your broker who can help with the sums on this if you’re not sure how to make it fit.
Is It Time To Refinance?
Check to see whether your existing lender offers a true bridging finance product. Bridging loan options vary greatly between lenders, possibly more than any other type of home loan.
Chat to an Online Home Loans broker to find a lender with a suitable product offering for your bridging and ongoing home loan needs. You can call us on 1300 135 456, fill in the Contact us form or kickstart the whole process by completing our “Find my rate” quiz.
