In today’s competitive Australian housing market, timing is everything. You might find the perfect home before your current one sells. Is it wiser to jump at the chance and hope for a quick sale or to play it safe and wait?
In this blog post, we’ll dive into the pros and cons of buying before selling, helping you make the best-informed decision for your financial future.
Can I qualify for a second mortgage while still paying my first?
Yes, you might be able to qualify for a second mortgage while still paying your first in Australia. However, it’s important to understand that obtaining a second mortgage is generally more difficult than your first mortgage. Here’s the breakdown as to why:
Factors Lenders Consider
- Equity in your current home: You’ll need enough equity in your existing property to secure the second mortgage. Lenders often have limits on how much they’ll lend against your equity (known as Loan-to-Value Ratio or LVR).
- Income and debt-to-income ratio: Lenders thoroughly assess your income to ensure you can handle the additional debt burden of two mortgages. They’ll look closely at your existing debts and financial commitments.
- Credit score: A good credit history demonstrates financial responsibility and is necessary for getting approved with favourable terms.
- Type of second mortgage: Some lenders specialise in second mortgages or have certain conditions that can make qualifying easier.
Challenges
- Stricter lending criteria: Second mortgages are viewed as riskier by lenders. Therefore, requirements can be more stringent in areas like income, debt-to-income ratio, and creditworthiness.
- Higher interest rates: The interest rate on your second mortgage will likely be higher than your first, increasing your overall costs.
Tips to Improve Your Chances
- Build up substantial equity: The more equity you have in your first home, the better your chances of approval and getting favourable terms.
- Pay down debt: Lowering your debt-to-income ratio makes you a more attractive borrower.
- Maintain a strong credit score: Pay bills on time and keep credit utilisation low.
- Shop around: Compare offers from various lenders, possibly including smaller lenders focused on second mortgages.
- Consult a mortgage broker: A mortgage broker can guide you towards lenders more likely to approve your situation.
What are the risks of buying a new house before selling my old one?
Here’s a look at the key risks when buying a new house before your existing one sells in Australia:
Financial Risks
- Carrying two mortgages: This is the most significant risk. You’ll need to handle two mortgage payments, increasing your financial burden and the risk of default if your old home doesn’t sell quickly.
- Increased costs: Alongside double mortgage payments, there’s the extra burden of rates, insurance, and potential maintenance costs for both properties.
- Pressure to sell quickly: You might need to accept a lower offer on your old home to unload it fast and reduce financial stress.
- Market fluctuations: If the housing market takes a downturn while you still own the old property, you might sell it for less than you anticipated.
Practical and Logistical Risks
- Finding temporary housing: If your old home sells before you move into the new one, you may need to rent or find other short-term accommodations, adding to your costs and hassle.
- Double the moving: Get ready for the physical and mental strain of two moves in a potentially short timeframe.
Ways to Mitigate Risk
- Bridging loan: This short-term loan can help manage the overlap between owning two properties, although it comes with added fees and interest.
- Contingent offer: Consider making an offer on your new home contingent on selling your current one. This helps protect you if your old home doesn’t sell in time.
- Extended settlement periods: Negotiate longer settlement periods for buying and/or selling to give yourself more flexibility.
- Realistic budgeting and projections: Be extremely thorough in your financial planning, understanding your limits and leave room for unexpected cost increases.
Crucially: Do not commit to this decision without fully assessing your financial situation, tolerance for risk, and the current state of the Australian housing market. Consulting with an expert conveyancer can be immensely helpful for an individual, tailored assessment.
Is it easier to sell my house if I’ve already bought a new one?
Unfortunately, it’s generally not easier to sell your house if you’ve already bought a new one. Here’s why:
- Sense of urgency from potential buyers: When a seller needs to move quickly because they’ve already bought elsewhere, buyers may sense this urgency. This can give them more leverage in negotiations, resulting in lower offers.
- Less flexibility with closing dates: If you’re already committed to your new home, you’ll have less flexibility when accommodating a buyer’s desired closing date. This could limit your pool of potential buyers.
- Pressure to accept lower offers: The financial burden of potentially carrying two mortgages could create pressure to accept an offer quickly, even if it’s below your ideal price.
- Maintenance of an empty house: If you’ve already moved into your new home, you’ll maintain an empty property. Vacant homes can be harder to show and may lose appeal from a buyer’s perspective compared to a lived-in, well-maintained home.
However, there are cases where having already bought can have neutral or even slightly advantageous outcomes:
- Hot seller’s market: In a strong seller’s market, demand for homes might be high enough that buyer urgency is less of a factor.
- Contingent offer: You might have included a sale contingency on purchasing your new home, protecting you if your old house didn’t sell.
- High financial capacity: If you have a sizeable financial buffer, the stress of potentially carrying two mortgages is reduced, freeing you to be patient and wait for the right offer.
Overall: Buying before selling can make selling your house more complex and sometimes puts you in a slightly weaker position during negotiations. There are ways to mitigate this, but knowing the potential challenges is essential.
A client approached our conveyancer at Walker Pender for advice on buying a new home before selling her current one amidst a seller’s market.
She expressed concerns about ensuring the value of her current home wouldn’t be compromised by the need to sell quickly after purchasing another property.
The client sought legal guidance to navigate this complex situation, and was able to make a strategic decision to protect her financial interests without sacrificing the potential value of her existing home.
Buying a House Before Selling
Considering buying a new home before selling your current one in Australia? Let Walker Pender guide you through this critical decision.
Our expert conveyancers will ensure you navigate the complexities of the property market without compromising the value of your existing home. Trust us to provide the legal advice and support you need for a seamless transition.
Make your next big move confidently—contact Walker Pender today for personalised assistance in buying before selling.
