Selling a Home to Buy a New One

If you’re looking to buy a new home, you need to consider what you’ll do with your current home. Should you sell first and then buy? Or buy first and sell later?

Do you want to buy a new home? Maybe you want an upgrade on your current home, or circumstances mean you need to downsize.

Whatever the case may be, you need to figure out how to handle the transactions. Do you buy first and sell your old home once you’ve secured a new one? Or, do you sell first and buy later? When do you get a home loan?

It’s a catch-22. You may not have the money to buy a new home before selling your old one. But you don’t want to sell until you’re sure you have another home lined up.

There are some potential solutions to these problems. At UNO home loans, we can help you make the right decision.

Things to Consider

Before you do anything, you should consider the following questions: • How easily can you sell your current home? • Do you know anybody who can help you financially, if needed? • How easy is it to find a new home that suits your needs? • Do you have enough equity in your home to get a bridging home loan? • Can you afford two properties in the short-term?

Your answers to those questions will determine which solution works best for you. Let’s take a look at some options.

Selling Your Current Home First

Selling your home before buying a new one should give you the money needed to put down a deposit. You don’t want to commit to a purchase without the money to back it up, and you may find it easier to secure a home loan.

But you leave yourself with nowhere to go once you complete the sale. You may have to move back in with your family, or rent a home during the bridging period.

You also need to consider how much equity you have in the home you’re selling. If you’ve paid less than 20% of the home’s value back through your loan, you may not qualify for a bridging loan. This makes selling first a bad option.

You could work with your buyer to come up with a solution. Some will allow you to rent your old home back from them for a couple of months while you search for a new home. This saves you from moving twice, but it depends on the attitude of your buyer.

Purchasing a New Home First

Buying your new home before selling your old one means you have somewhere to go straight away. You won’t have to worry about renting in between transactions, or relying on the grace of others to help you out.

But you need to have financial stability to attempt this. You essentially pay two home loans during the transition period when you go down this route. Your repayments will have to cover both properties, but you will find that your payments decrease once you sell your old home.

As such, this option works best if you have enough money to fund the purchase without selling. Also, you can often buy first if you have repaid at least 40% of the old home’s loan.

Trying to buy first when you aren’t financially stable may make a lender decline the loan on the new property. This forces a quick sale, which can result in you getting less than the market value for the home.

Purchasing First with a Guarantor Loan

This is where people who can help you financially come into play. Your parents could use their home as a guarantee, allowing you to secure a guarantor home loan. In many cases, you can pay off this guarantee upon the sale of your old home.

This solution allows you to buy first without having built a lot of equity in your current home. But you will still need a stable income and parents who are willing to take out the guarantee.

A Bridging Loan

Remember when we spoke about paying loans on two properties if you buy first? That’s where bridging loans usually can help

A bridging loan allows you to own both properties temporarily, without forcing you to commit to the full loan on your new property until you’ve completed your sale. The interest for the properties gets added to the loan until you complete the sale of your current home. You can also take your time with the selling process, assuming you can afford the extra interest on the bridging loan.

You must have built a lot of equity in your home to take this option. Most lenders will insist that you have repaid at least 40% of the existing home loan before you can get a bridging loan. Beyond that, the lender won’t expect you to be able to afford the debt on both properties during this bridging period. But you will need to pay back any debt that remains once you’ve completed the two transactions.

A bridging loan works best if you’re looking to downsize into a less expensive home. This usually means that no debt remains after the transaction, so you don’t need to provide a lender with proof of income.

A Simultaneous Settlement

In an ideal world, you can arrange to buy your new home on the same date you sell your old one. Unfortunately, things rarely work out that way. Just one issue with either transaction can cause delays.

That means each settlement relies on the other for things to work out. Delays on either end could mean you end up paying penalty fees. Worst case scenario, you could lose your entire deposit on the new home.

But you get two key advantages if everything works out in a simultaneous settlement. You don’t have to find somewhere to live between the two transactions, and you won’t pay a home loan on two properties simultaneously.

How Can I Do a Simultaneous Settlement?

We want to take a moment to look at simultaneous settlements in more detail, as they’re the most complex option here.

Firstly, you need to offer a long sale settlement before going down this route. Many choose a settlement period of six months, with the option of shortening the period with four weeks’ notice.

This clause is the key. You will search for another property during this period, after which you can move the settlement forward depending on the settlement date of the new home.

You can do it the other way too. Your purchased home could have a long settlement period, which you adjust depending on when you sell your current home. This option presents more risks, including the possible loss of your deposit. If you can’t sell your home within the buying settlement period, you may lose your deposit.

That makes this the most complex option of the lot. You also need to have the following to make a simultaneous settlement work: • Top-notch negotiation skills. • The willingness to sell below value and buy above value. • Good relationships with all involved in the process.

Experienced mortgage brokers can help you with the details, as can good real estate agents.

A Summary

So which option works best for you? Here’s our summary: • Selling first works best if you believe the property will take a long time to sell, or you haven’t built much equity. • Buying first is ideal if you earn enough to cover both properties and have built at least 40% equity. • A guarantor loan will help you if your parents are willing to place a guarantee against their home for you. You won’t need much equity if you choose this option. • Bridging loans work best if you have built at least 40% equity, but don’t have the money to pay for two properties at the same time. • A simultaneous settlement is potentially the best, but most complex solution. You need to feel confident in both transactions, as well as maintain great relationships with all involved.

What to do next

Speak to a mortgage broker to find out about home loan policies. You will need to secure a loan on the new home at some point, so it’s a good idea to begin early. You can do three things to start the process: • Use the UNO home loan calculator to find out how much you can borrow. • Check our current rates. • Book in a quick call with our customer care team.

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What our customers are saying

Gabe Windsor
October 26, 2023
What a fantastic experience using UNO Home Loans. Mike Parsons and the team were exceptional. Such an easy, hassle free experience, cannot recommend them highly enough. Mike Parsons was in touch every step of the way, and with him doing all the leg work, the transition to a refinanced home loan was a very easy one. Thank you!
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Laurisa Sticotti
July 1, 2023
Scott Wilkinson has been fantastic when dealing with my broking needs. He has held my hand through every step of the way and has made purchasing my first home a much more comfortable experience than I anticipated.
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July 1, 2023
Awesome team, Very reliable and friendly. Scott Wilkinson is very experienced and knowledgeable.He guided us throughout the process and was available to help.
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June 1, 2023
I have worked with Scott Wilkinson to get my home loan and he has been a massive help to navigate my first home purchase. He has taken care of all the financial details and I didn't need to worry about anything. Highly recommend him for his professionalism, patience and support!
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Kelly O'Connor
June 1, 2023
You won’t find any broker better than Anita at UNO. We’ve told all our friends and family about her and will be using her for all our mortgages in the future! A stress free process from the start. She listened to our needs and was always available.
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Ashley Morson
We are truly grateful for uno home loans and our broker Karis Churchill. This is our second time purchasing a home with the help from Uno and both times have been a very positive experience. Our recent purchase had many obstacles due to different factors however it was our dream home and we were up for the challenge. Our broker Karis was a true support and went above and beyond. She communicated so well with our solicitor and the real estate agents. She kept us updated through every step and kept us motivated when things seemed impossible. Uno is very fortunate to have Karis as a broker and we would highly recommend her to anyone. Our family are so happy we are now in our new forever home. Thank you so much Karis and to the uno team!!!
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Thank you Eren for your quick and efficient turn around time to getting an approval for a loan. Will be recommending you to anyone that needs a quick and reliable loan.
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