You’ve been visiting open house inspections for months and you’ve finally found your dream home. The problem is, you haven’t sold the home you’re living in now. Should you dive in and buy – or wait until you’ve sold but risk missing out on the perfect property?
Finding the perfect home certainly isn’t easy, but buying before you sell has challenges too. One of the biggest issues to solve if you buy before you sell is finance.
Bridging loans can be a way to give you the money you need to make the purchase while you wait to sell your existing home.
What is a bridging loan?
A bridging loan is a short-term loan that can help fund the purchase of a new home while you wait to sell your current home.
The amount you borrow for your bridging loan is usually added to the balance of your existing home loan. You can usually arrange a bridging loan for a period of about six to 12 months.
While you might not be making repayments on this extra amount during the bridging period of the loan, interest will be building up on this extra debt. Then the total outstanding amount – including interest – is repaid when your existing property is sold.
There may be penalties if the existing property takes longer than expected to sell or the bridging loan isn’t paid back on time.
Buy before you sell: the pros and cons.
Pros:
- People often buy before they sell because they find exactly what they are looking for.
- When you do sell your existing home, you won’t have to rent. You’ll be able to move straight into your new home.
Cons:
- You might feel pressured to sell your existing home quickly and end up getting a lower price than you’d hoped for.
- You might not be able to sell your existing home.
- You don’t have enough money to purchase the new property. This is where a bridging loan can come in.
Sell before you buy: the pros and cons.
Pros:
- You’ll know how much money you have for your deposit on the new property and how much you’ll be able to borrow.
- You can take your time selling your existing property and wait to get the price you want.
- While looking for a new home, you can earn income on the money from the sale of the existing property by keeping it in an interest-bearing bank account.
Cons:
- There may be a period after you sell before finding a new home to buy. If this happens, you’ll have to budget for the cost of renting once your home is sold, and keep in mind the inconvenience of having to move twice.
- If property prices are rising, you may find that the properties you had in mind to purchase for your new home are now beyond your budget.
