Can You Buy a New Home Before Selling Your Current Home?

You've found the home you want to buy — but there's one problem. You haven't sold your current home yet.

It's a common situation for homeowners looking to upgrade, downsize or move, particularly when the right property becomes available before the timing of their existing sale lines up.

The good news is that you don't necessarily have to sell first. Depending on your financial position, a bridging loan may allow you to purchase your next home before your current property has sold.

What is a bridging loan?

A bridging loan is a short-term form of property finance designed to cover the period between purchasing a new property and selling an existing one.

Instead of having to make the sale of your current home and the purchase of your next home happen at exactly the same time, bridging finance can provide some flexibility between the two transactions.

Once your existing property sells, the sale proceeds are generally used to repay the bridging portion of the finance. If there is still money owing after the sale, the remaining amount becomes the ongoing home loan on your new property.

How does buying before selling work?

When you buy your next property before selling your existing one, there is a period where you temporarily own both properties.

A lender will generally look at your existing mortgage, the amount required to purchase your new property, the equity you have available and your expected financial position once your existing property has been sold.

This temporary period is known as the bridging period.

The exact structure varies between lenders. Some bridging loans require interest payments during the bridging period, while others may allow interest to be added to the loan balance.

This is one reason it's important to compare more than just the interest rate when considering bridging finance.

What is peak debt?

One term you'll often hear when discussing bridging finance is peak debt.

Put simply, peak debt is the highest level of debt you may have during the transition between the two properties.

Depending on the lender and loan structure, this can take into account your existing home loan, the funds required to purchase the new property and certain costs or capitalised interest, less any contribution you're making yourself.

Because your debt is temporarily higher before your existing property is sold, lenders will assess whether the proposed bridging arrangement meets their lending criteria.

What is end debt?

Your end debt is essentially the home loan you're expected to have remaining after your existing property has been sold and the relevant sale proceeds have been applied to your debts.

For example, someone upgrading to a more expensive property may still have a mortgage after their existing home sells. That remaining loan is commonly referred to as the end debt.

Someone downsizing, on the other hand, may receive enough from their sale to repay the bridging finance entirely and therefore have little or no end debt.

Do you have to make repayments during a bridging loan?

It depends on the lender and the particular bridging product.

Some lenders may require interest-only payments during the bridging period. Other products may allow interest to be capitalised — meaning the interest is added to the loan rather than being paid each month.

Capitalising interest can reduce the immediate cash-flow pressure while you're holding two properties, but it also increases the amount owing.

This is an area where comparing lenders can be particularly important because bridging policies aren't identical across the market.

How long can a bridging loan last?

Bridging finance is designed to be temporary rather than a long-term home loan.

The timeframe available to sell your existing property depends on the lender and the particular product.

The longer it takes to sell, the more interest you may pay, so the expected sale timeframe of your existing property is an important part of the conversation before proceeding.

What will a lender consider?

Bridging finance isn't automatically available simply because you already own a property.

Depending on the lender, the assessment may consider factors including your existing mortgage, equity, borrowing capacity, value of both properties, expected sale proceeds, proposed end debt and ability to meet the lender's servicing requirements.

The lender may also require valuations of the properties involved.

This is where getting the finance assessed before committing to your next purchase can be particularly valuable.

What are the advantages of buying before selling?

For the right borrower, one of the biggest advantages is flexibility.

You may be able to secure the property you actually want rather than rushing to find something because your existing home has already sold.

It can also reduce the need to move into temporary accommodation, move twice or place your belongings into storage between properties.

You may also have more time to prepare your existing home for sale rather than trying to coordinate two settlements perfectly.

What are the risks?

Bridging finance also carries risks that need to be considered carefully.

Your existing property could take longer to sell than expected. It could also sell for less than you anticipated, which may leave you with a larger ongoing loan than originally planned.

You'll also be carrying a higher level of debt during the bridging period, and interest costs can increase the longer the bridging finance remains outstanding.

That's why it's important to understand not only whether you can obtain bridging finance, but what your financial position could look like under different sale prices and timeframes.

Buying your next home on the Gold Coast?

For homeowners upgrading or moving on the Gold Coast, buying and selling in exactly the right order isn't always possible.

If you've found your next property but haven't yet sold your existing home, it's worth understanding your finance position before deciding whether to make an offer.

As a Gold Coast mortgage and finance broker, Daniel Endor can compare available lending options and help you understand how different bridging structures may apply to your circumstances.

This can include looking at your existing debt, available equity, estimated sale proceeds, potential peak debt and expected end debt so you have a clearer picture of the numbers before moving forward.

Thinking about buying before you sell?

If you're considering your next property and aren't sure whether you need to sell first, speak with Daniel before committing to the purchase.

Understanding your options early can help you work out whether bridging finance is suitable for your circumstances — and what the transition from your current home to your next one could look like.

Contact Daniel Endor on 0491 969 988 to discuss your next move.