Buy first, then sell? OR sell first, then buy?

Buy first, then sell? OR sell first, then buy?...... How to plan a move from your existing home to a new home. There are quite a few ways to skin a cat as they say. 

The below assumes you don’t want to hold the existing property long term.

1)    Buy before you sell - Bridging loan

A bridging loan or bridging finance is when you retain the existing loan on your current home plus you borrow the funds required to settle the property being purchased. Mortgages are held by the same lender over both properties. The lender then allows interest to accrue on the bridging portion of the loan for up to 6 months giving the borrower time to sell their existing property. When you sell the existing property, the sale proceeds pay down the loan.

• Pros – You get to buy first, then take your time to sell. Serviceability is on the end loan amount not the “peak” loan amount.
• Cons – Bridging loan interest rates are quite high. No certainty over the sale price before you buy.

2)    Buy before you sell - Quasi bridging loan

Carry both properties and both loans (on paper at least going forward). 

In this scenario, you dictate to the lender that you intend to hold both properties ongoing and that one will be an investment and will be rented out. You would need a strong servicing position to manage this as you would on paper at least need to show you can service both property loans at the same time. If this is possible it is a cheaper and less fiddly way to achieve bridging finance.

Ultimately if you can service both debts on both properties it is OK to assume this for application purposes. After you have secured the purchase of the new property you put the existing property on the market so that you may only have to carry both debts for a very short period of time. 

• Pros – You get to buy first, then take your time to sell. Cheaper rates than official bridging finance. Can have standalone securities so no rejigging required after the sale goes through.
• Cons - No certainty over the sale price before you buy.

3)    Buy before you sell – negotiate a long settlement period of at least 3-months.

Then pray you can sell your place in time and settle the same day as the purchase.

This sounds risky but is quite common when buying a new home. You need to be willing to take the price offered by the market at the time your existing property goes for sale. You may also want to make sure you qualify for a bridging loan as a backup in case of a delayed selling period.

The existing loan is to be paid out which becomes a settlement condition of the new loan i.e. as the same time a the new loan is settled the old loan is paid out.

• Pros – No bridging requirement.
• Cons – what if you can’t sell in time! (needs a plan b)

4)    Sell first - Settle the sale and purchase at the same time.

This option is usually done by having a long settlement on the sale of your existing property. This could be 3 or even 6 months with the view to finding something suitable to buy in that time and negotiating the settlement to be the same date.

• Pros -   Certainty of sale price before you go shopping for a new home. In a flat or down trending market is a great idea
• Cons -  In a rising market can become a problem!

5)    Sell first - Rent then buy

In this scenario, you sell first and rent for 6-12 months. When you find a property, you want to buy you can apply for a new loan or have a pre-approval in place ready to go. This strategy has minimal risk, except in the circumstance where property prices rise in the area you wish to buy.

• Pros -   Certainty of sale price before you go shopping for a new home. In a flat or down trending market is a great idea
• Cons -  In a rising market can become a big problem!
•