Sell first, buy first or get a bridging loan?

Are you looking to move to a new home?

Whether you’re upgrading or downsizing, you’ll need to decide if you’ll buy the new home first or sell your existing home.

This can be quite tricky as most people don’t want to sell until they’ve found a new house and many can’t buy until their old home has been sold!

We’ve worked out some solutions that work for most people so read on to find out how we can help you when selling and buying a new home.

What do I need to consider?

The method you choose depends on your current equity situation, the type of loan you qualify for and what your needs are.

You should ask yourself the following questions:

  • Will it be easy to sell my home quickly?
  • How long will it take for me to find a new home?
  • Can my family help me out financially, if need be?
  • Do I have enough equity to consider a bridging loan?
  • Do I have a high enough income to consider owning both at the same time without a bridging loan?

Which solution is the best for me?

Below is a summary of the most common methods adopted by people in various situations.

  • Selling first: This is suitable if you have little to no equity or if your property may take some time to sell.
  • Buying first: This is suitable if you have significant equity and a strong enough income to hold both properties.
  • Buying first with a guarantor loan: This is suitable if you have little to no equity, a strong enough income to hold both properties and your parents are willing to put up their property as additional security for your loan.
  • Simultaneous settlement: This is suitable if you can arrange both the purchase and the sale to settle on the same day. Often, you’ll need to have excellent negotiation skills or a great mortgage broker and solicitor to make this work.
  • Bridging loan: This is suitable if you have significant equity but don’t have enough income to hold both properties for a long period of time.

Selling your old home first

This is where you sell your current home before you buy your new home.

The biggest disadvantage is that you may have to rent a place for a period of time before you’re able to find a new house.

The advantage of this method is that the funds from the sale of your home will be in your account so you won’t be taking the risk of committing to buy a new home, without having a deposit available.

If you don’t have much equity in your current home (you owe over 80% of the property value_, you won’t qualify for a bridging loan so selling first may be the best option to go with.

If you’re good at negotiating, you may be able to get the person buying your home to agree to rent your home back to you until you buy a new property. This will avoid the need to move home twice!

Buying your new home first

This is where you buy the new home first and sell your existing home at a later date.

The lender will take security over both properties and you would be make repayments on the total debt amount.

When you sell your old home, the debt would be reduced and your repayments would drop.

This is suitable for people with an excellent income and those who have significant equity in their current property (they owe less than 60% of the value of their property).

The major advantage of this method is that it allows you to buy right away and avoid renting whilst you find a place.

Unfortunately, many people who choose this method aren’t actually in the financial position to hold both properties at the same time!

So their bank declines their loan application or they are forced to sell their old home quickly, often below market value.

Buying first with a guarantor loan

This is where you buy your new home first with the help of your parents who provide a guarantee over their home or investment property.

Because of this, you’re not required to have significant equity in your home.

When you sell your old home, you can pay off part of your debt and, in most cases, remove the guarantee entirely.

This solution is an excellent choice for people with a strong income and have parents that are able to guarantee their home loan.

Simultaneous settlement

A simultaneous settlement is where the settlement for the sale of your old home and the purchase of your new home happens at the same time.

This is notoriously difficult to orchestrate!

However, when it works you don’t have to pay rent on a property whilst waiting to buy and you don’t have to pay a mortgage on two properties at the same time.

Sounds great but there’s a problem.

If one of the settlements are delayed, it can cause difficulties!

Both settlements are reliant on each other so if one of them has a minor problem, the entire move needs to be rescheduled for two to three days later.

This could end up costing you money in penalty interest and, if the problem causes a serious delay, you may lose your deposit!

How can I simultaneously settle?

Most people who do this sell their home with a long settlement of up to 6 months.

They include a clause that allows them to bring forward settlement as long as they give four weeks’ notice.

They then look for a property to buy and when a property is found, they can move the settlement on their old home forward so that both properties settle on the same day.

The only risk involved with this is if you don’t find a home to buy in time, you may need to move out of your old home and rent.

Alternatively, some people buy their new home with a long settlement of 6 months and a clause that allows them to bring forward settlement.

They can then sell their old home and bring forward the settlement of their new home to match the settlement date for their old home.

The risk of this option is that if you don’t sell your home in time, you may end up losing the deposit on the new home.

Therefore, we don’t recommend this option to most people.

What do I need to achieve this?

If you want to make a simultaneous settlement work, you must have excellent negotiation skills and be willing to sell your home a little below value, or buy a little above value.

This will provide the other person with an incentive to agree to the delayed settlement.

This option often works best when the sale is between friends or family members.

It’s essential for you to have an experienced and professional real estate agent, conveyancer / solicitor and mortgage broker to help you.

Using a bridging loan

A bridging loan is used when you buy a new home before you’ve sold your own home.

The bridging loan allows you to temporarily own both properties and, in most cases, the interest is capitalised (added to the loan) until you’ve sold your old property.

This method is only available to those that owe approximately 60% or less of the value of your home, as lenders require you to have significant equity before they’ll approve your bridging home loan.

Lenders don’t require you to be able to afford the debt when you own both properties (known as the “peak debt”).

This is because the interest is capitalised.

However, if there’s a debt that remains once you have sold your old home, then you must be able to afford that debt.

Is a bridging loan right for me?

In most cases, the people that apply for bridging loans are pensioners who are downsizing homes.,

There’s usually no debt left over when the old property is sold.

In these situations, there’s no need to prove income.

The main advantage of a bridging loan is that you can buy a property now, move into it and then sell your old home whenever you wish.

The disadvantages are that you’ll be charged a high amount of interest during the period in which you own both properties, you need a lot of equity to qualify for a bridging loan and there’s often a set time period in which you have to sell your home.

Get the right advice

Speaking to the right people will make the process smoother!

If you have a good real estate agent and solicitor, you’ll be getting the information you need to make informed decisions.

If you’re doing a simultaneous settlement, you’ll need a very experienced conveyancer and if you’re using a bridging loan, it’s important to speak to an expert mortgage broker.

Apply for a home loan

Do you need finance for your new home?

Please contact us on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers will give you a call to discuss the most suitable home loan options for your situation.

  • Arthur

    I earn enough income to hold both properties but not much equity. What should I do?

  • Hello Arthur,

    Buying first with a guarantor loan can be a suitable option if you have little to no equity, a strong enough income to hold both properties and your parents are willing to put up their property as additional security for your loan. Do make sure that you know what you’re doing and that you speak with a professional financial adviser or your accountant before moving ahead.

  • Simcha

    How much can I borrow with a bridging loan?

  • Hey Simcha,

    You can generally borrow up to 80% of the peak debt, which is the purchase price of the new property plus your current mortgage. Note that the lenders may add a 6 month interest rate buffer when assessing your ability to pay off the bridging loan. They’ll also discount the projected sale price of your existing property by around 15%, otherwise known as a “fire sale” buffer. Both of these can have an impact on your borrowing power.

  • Emma34

    Will 50% equity be enough to qualify for a bridging loan or will I need to have more?

  • Hey Emma34, there is no hard and fast rule but if you have more than 50% in equity then it should be enough to make the bridging loan worthwhile. If you want to learn more about this then you can check out the bridging loans page:

  • Zac1937

    Is it possible to top up or increase a mortgage on the first house to get deposit on next house in the interim between selling and finalising settlement on first house.

  • Hi Zac,
    Yes you can do this as long as you meet the criteria. If you will own both properties at the same time then your income has to be high to show the bank that if you don’t sell your old home then you can afford both.
    Whereas if you are just getting a deposit out and then settlement of your old home will happen at the same time or before the settlement of your new home then you don’t need to show that high an income to get approved.

  • Vincent

    We are aiming to sell with a friend, and upsize to a bigger house, without having spare cash for a deposit for the seller. Is this arranged through a simultaneous settlement-as in by exchanging contracts for both properties at once we are delivering the seller the deposit they require. Or would we be required to provide a deposit sooner.

    confused by the process. It goes offer, acceptance, exchange (within about 10 days) and then settlement-which we want to negotiate at 60 days. Is the deposit paid with the exchange of contracts?

  • Hi Vincent
    Your friend can pay you a deposit. Then by mutual agreement you can release this deposit and use it as a deposit for your new property.
    Settlement can happen on the same day to avoid issues with the rest of the funds.

    Your conveyancer should be able to assist you with the offer, acceptance & exchange process. As it differs between states I’d prefer not to advise on that in case it’s not accurate for your situation.

  • Jez Chez

    Hi team,

    Re. buying a new place and selling existing. How does one actually time the general belongings? And removalists?

    I assume even if you get to line up settlement of both properties on the same day, you still need to rent a place and put your things in before moving out again to the new home?

  • Hi Jez,
    It’s a balancing act and it takes careful planning. Very often settlements are delayed due to some kind of problem. There’s many parties involved in each settlement and so it doesn’t necessarily have to be your fault, it could be the vendor’s bank who isn’t ready or something like that.
    So the keys to success are:
    – Check with all parties to make sure they are ready
    – Make sure everyone is aware of the removalist situation
    – Discuss with the vendor that if they delay settlement can you still move in your things on that day (risk mitigation)
    – Discuss with the removalist what you’ll do if things go wrong
    – Organise cleaners to come in right away after your removalists move out
    Best of luck!

  • Jez Chez

    Thanks. I guess this then eliminates the need of renting! Albeit can be stressful if not managed and planned carefully.

    Is there also anything to be concerned if the vendor has requested an early release of deposit ie section 27?

  • No that isn’t a big deal. Usually it just means they want the deposit so that they can buy another home. I’d get advice from your conveyancer or solicitor prior to agreeing to release the deposit. But in most cases it is fine.

  • Jez Chez

    Much appreciated.

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  • Denise Testa

    I am really worried regarding this buying and selling business. I am on a disability pension and have next to no money. I lived with my elderly mother until she died last year. The house has been left to my brother and I, so the house needs to be sold. He already has a home. I will have to purchase somewhere to live, and in that sense I am lucky. However, I am concerned about all the fees and charges, as well as the fact that if settlement wasn’t simultaneous, I can’t afford to rent anywhere, nor move all the time. To complicate matters, I have two dogs, one of which I inherited. I won’t part with the dogs under any circumstance and would rather live in my car than part with them. I don’t know what to do as I only have a few thousand dollars to my name.

  • Hi Denise,
    You can consider buying your brother’s share of the house if your income allows you to afford the mortgage.
    If not then you may want to sell with an extended settlement date which can be brought forward by mutual agreement. I’d recommend that you talk to your real estate agent and conveyancer to work out the best option for your situation.

  • Denise Testa

    I get approximately $450 a week on the pension, so buying my brother out is not an option for me and the yards are too big for me to manage anyhow, so I would like a smaller place. I will discuss the long settlement date possibility with my brother, since this appears to be my only option. My aunt has a large house and has offered to take me in there should settlement dates not coincide. I will speak with estate agents today. Thank you for you help.

  • No problem, good luck!

  • khaos zeus

    I have bought a house over 10 months ago on bank loan + mortgage insurance and have now decided to downsize from 4 bedroom to 2+ bedroom house. Me and my partner have decided to go our seperate ways, i alone cannot pay the EMIs and manage other expenses hence we decided to downsize. i have two kids 5 and 12 years old and preferable look for another property close to school like the one right now. I have less than $10k in my account and have a perm job. . Will get enough equity considering the real estaste prices have gone down in VIC. Can someone advise as to what is the best way to proceed?

  • Cara

    Hi, if I sell and then buy another owner-occupied property at the same time, do I have to stamp duty and LMI again?

  • Hi Cara,
    Stamp duty, now known as land transfer duty is paid by the purchaser of a property. So, you would only pay it once when you buy a property after selling your previous property.
    Generally, it is only if you’re borrowing over 80% of the property value that Lenders Mortgage Insurance (LMI) will be applicable.

  • Keon

    Hi, can I make an offer to purchase another property based on my sale going through? I found a new house I like, and I want to secure it now and not run the risk of losing it by waiting on settlement of my current home. I don’t need any finance.

  • Hi Keon,
    You may make an offer but we advise you to have a cooling off period in the contract to cover any issues with the sale of your current property just to be on the safe side. Your solicitor should be better able to advise you on this regard.

  • This information can be very helpful for those who want to buy a new house but can not decide what to do and how to do it.

  • Hi Adam,

    Absolutely! Please let us know if you have any queries.