In this article:
It’s a common conundrum: you’re ready to make the leap into your next home, but you may have to purchase it without having sold your existing home.
The prospect of moving into a more suitable or desirable home excites many, yet the process often seems daunting, particularly when your current residence hasn’t sold yet. This scenario, far from unique, creates a hurdle that seems insurmountable to some.
However, with the correct guidance and strategy, transitioning to your dream home without having sold your current property is not only possible, but it can also be a smoother process than you might imagine.
To help you take the first step forward, the guide below explores some choices you can make to buy a house before selling your current one.
First up, know your finances
The first step in buying a new home before selling your current one is to assess your financial situation. Determine how much equity you have in your current home and whether you can afford two mortgages simultaneously.
If you need a hand doing this, or if you’re ready for the next step, speak with a reputable mortgage broker who can help you understand your options and provide valuable insights into your financial capabilities.
Check out Bridge Financing
Bridge financing is a common solution for homeowners who want to buy a new home before selling their current one. This type of short-term financing allows you to access the equity in your current home to purchase your new property. Essentially you take out a bridge loan that covers the down payment and closing costs on your new home while you wait for your current home to sell.
These loans do have some risks and potential drawbacks; they typically have higher interest rates and fees than traditional mortgages and you’ll need to qualify for two mortgages at once. It’s definitely an option that has been utilised by many in the past, so reach out to your financial advisor or a knowledgeable mortgage broker for the help you need to secure the loan and get you that new property.
Have you thought about Contingent Offers?
Another option to consider is making a contingent offer on your new home. A contingent offer means that your purchase of the new home is dependent on the sale of your current home. While this option can be more challenging in competitive markets, a skilled mortgage broker can help negotiate terms that work in your favour and increase the likelihood of your offer being accepted.
Could you Rent Out Your Current Home?
If you’re unable to sell your current home before purchasing a new one, renting it out can be a viable solution. By becoming a landlord, you can generate rental income to help cover your mortgage payments while you transition to your new home.
While this strategy can be particularly sound in a hot rental market, it does come with its own responsibilities and potential challenges. You’ll need to familiarise yourself with landlord-tenant laws and be prepared to handle any issues that may arise with your tenants.
Working with a skilled mortgage broker, financial advisor or property agent can assist you in this process, as there are going to be a number of steps involved. You will need to secure a mortgage for your new home based on your income, your ‘new’ rental income and other financial factors while avoiding as much risk as possible.
Explore Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) is another financing option to consider when buying a new home before selling your current one. This popular strategy is a flexible solution that allows you to access funds as needed and can be an excellent tool for managing cash flow during the transition period.
With a HELOC, you can borrow against the equity in your current home to finance the purchase of your new home.
The available funds can be used to fund the down payment or even the entire purchase of the new home. Once the old home is sold, the proceeds can be used to pay off the HELOC.
While HELOCs offer lower interest rates than bridge loans, they also require substantial equity in the current home. And, like bridge loans, you’ll need to qualify based on carrying two mortgages.
Work with Experienced Professionals
Navigating the process of buying a new home before selling your current one can be complex, but you don’t have to do it alone. Partnering with experienced professionals, such as mortgage brokers, real estate agents, and financial advisors, makes all the difference. These experts can provide valuable guidance, help you explore your financing options, and ensure a smooth transition from your current home to your new one. It makes sense to take advantage of their knowledge and contacts to achieve the best outcome for your investment.
Buying a new home before selling your current one is achievable, with the right strategy and support. But, as it involves considerable financial commitment, it is definitely a decision you need to make when you’re armed with all the necessary information.
Fortunately, there are a variety of pathways forward for those who are ready to take this step.
When you’re ready to make the jump, speak to the professionals to help you identify the strategies that will work for you and get you safely into that new home.
