Selling and buying a house at the same time: a how to guide
We break down what you need to consider when buying and selling at the same time.
Selling and buying a house at the same time is a juggling act many New Zealanders perform at some point. After all, unless you’re investing in a holiday home or exploring real estate as an income opportunity, few of us need two houses, and most need equity to put into a new property purchase.
However, there’s no doubt that buying and selling at the same time is more complicated than just doing one or the other, especially if a high percentage of your existing and new properties are mortgaged to the bank.
To help you navigate this process, we’re going to look into the three options you have to achieve the result you want – a successful sale and a successful purchase with minimal stress.
Selling and buying a home at the same time: your options
1. Buying first
There's no doubt that selling and buying at the same time is a careful juggling act.
It’s also important to consider what impact your decision to add this condition will have on the seller. After all, you’re asking them to trust that you’ll be able to sell your property before going unconditional on the purchase of theirs. If they’re considering your offer against an offer with no or minimal conditions, there’s a good chance they’ll accept that offer over yours, due to the reduced risk to them.
Before making a conditional offer on a property, talk to your bank or finance company about the possibility of arranging bridging finance as a back-up option if your house doesn’t sell by the deadline.
Bridging loans - how do they work?
Bridging finance, or a bridging loan, is an additional short-term home loan. This finance can help you purchase your new home before selling your existing property by giving you the capital you need. There are two types of bridging loans in New Zealand:
1. Open bridging loans
Open bridging loans could be an option for you if you haven’t yet finalised the sale of your property, and don’t have a set date by which your home will be sold. Because of this, the lender will see you as a greater risk, because they don’t know exactly when you’ll be able to repay them. Therefore, if you go for an open bridging loan, you can expect a longer process and more equity in your property than if you take the next option.
2. Closed bridging loans
Closed bridging loans are only accessible if you’ve got a predetermined date by which your property will be sold. Because lenders see this as less risky, closed bridging loans usually require less equity.
Of course, there’s additional risks for you in taking out any extra types of home loans, that include:
- Additional payments: for a time, you’ll be servicing two loans simultaneously, and you’ll need to be able to service both.
- Increased debt: if your current home sells for less than you expected, you end up with greater debt than you planned for due to having to pay off the bridging loan too.
You can talk to a mortgage broker about your bridging loan options.
2. Selling first
The sensible voice in the back of your head may be saying sell first, then start to look for your new house with cash in hand.
The added plus here is vendors love unconditional cash offers, and as a home buyer it’s a great confidence boost to put a cash offer on the table for your dream home. Selling your existing home first can enable you to do this. You may also need to get finance pre-approval from your bank or finance company, so you can look for your next home and negotiate confidently.
Don’t muck around, though… if you haven’t settled on a new property by the time your own home sale settles, you’ll need to rent temporary accommodation. One way to get around this is to set a lengthy settlement date on your existing property to give yourself a decent amount of time to find your next home.
3. Buying and selling at the same time
If you choose the double act – putting your home on the market while actively looking to buy your next house at the same time – you may want to consider bridging finance. This will help fill in any weeks where you’re short on funds for your new mortgage.
The same adage applies in all cases – ‘buyer beware’. Always have one hand on the calculator and the other on the contracts – this is one battle where you want your head to win over your heart.
*This information is not intended as a complete guide, as it doesn’t consider your individual needs or financial situation. Trade Me accepts no responsibility or liability for any inaccuracies or omissions in the content. Always obtain independent legal advice before buying or selling property.
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