Buying before you sell

In a perfect world, your dream home would arrive the moment the ink dries on your sales agreement. But when money and timing don’t align, and you would like to buy a house before selling your current one, what are the options?

Consider a bridging loan

One way to navigate buying a house before you sell your current one is to take out a bridging loan. This is a short-term loan, usually up to 12 months, that generally combines your current home loan with the loan you need to buy your intended next home. It may also allow you to use the equity in your existing home for the deposit towards the new one.

A bridging loan could buy you some ‘breathing room’ to sell your existing home, but like any loan, you’ll need to apply and meet certain requirements to be approved for the loan. For example, you will need to be able to make repayments on both your current home and new home during the bridging period.

During the bridging loan period, repayments on the loan are interest-only, but may be higher than what you’ve been repaying because you’ll be borrowing more money to cover both properties. When you sell your current home, funds from the sale will pay down the bridging loan. Typically, you’ll then begin making ongoing principal and interest loan repayments for the new home you’ve purchased.

Applying for a bridging loan to buy a house before selling your current house

• With a loan period of generally up to twelve months, a bridging loan could give you the flexibility to buy a house before selling yours.
• Bridging loan rates are generally competitive and comparable to standard variable interest rates, and repayments on a bridging loan are interest-only during the bridging loan period.
• Interest is calculated daily and generally charged monthly. This means the longer it takes to sell your current home, the more interest you will pay.

How much could you borrow?

With a bridging loan, you may be able to borrow up to 80% of the bank assessed value of the new home (known as your Loan to Value Ratio, or LVR). You can apply for pre-approval on a bridging loan to help give you an idea of how much you could afford to spend on your next home. Pre-approval generally lasts for three months, giving you some flexibility.

What if you can’t sell your current home, or it sells for less than you hoped?

A lender can work with you to review your ongoing loan and discuss your options. If it doesn’t look like you’ll be able to sell your current home, let your lender know as soon as possible.

Other options to consider when buying before you sell

Seeking an extended settlement

You could ask for a longer settlement than the typical 30, 60 or 90 days. Whether the seller agrees to this may depend on things like their circumstances, and what’s happening in the market at the time.

Making an offer subject to selling your current home

In a private sale, you could consider if the purchase of your new home could be conditional on the sale of your current home. Whether the seller accepts this offer may depend on things like how competitive your offer is and whether there are other interested buyers who aren’t seeking to impose conditions. Consider talking to your lender, agent and seeking independent professional advice before going down this road to make sure that you understand any potential risks and costs that may arise.

Considering keeping both homes

If you are considering whether you could afford to keep your existing property as an investment, talk to your lender to understand whether this might be an option available to you. Again, it’s a good idea to first seek independent professional advice so that you have a full picture of the risks and what’s involved in this scenario.

To sum up

• Finding a new house you want to buy before you sell your current house is a common situation and financing options may be available to help you.
• A bridging loan for up to 12 months may give you some additional time to sell your current house after buying another home.
• Your lender and your real estate agent may be able to suggest other potential options with you. You may also consider seeking independent professional advice through speaking with your financial adviser, accountant or lawyer.

More information

Learn more about how a bridging loan could help you to buy a house before selling yours.