How to sell your home while buying a new one

Whether you’re upsizing, downsizing, sea-changing or suburb-hopping, one real estate challenge remains the same – how to buy and sell at the same time?

Yes its possible – thousands of Australians manage this financial feat every year – but we’re not going to pull the wool completely over your eyes – the whole experience is going to be fraught with nervous decisions and unwelcome costs.

Once you’ve accepted that, then its time to start preparing, because the more organised you are, the better you’ll be able to negotiate the hurdles you’re bound to come across.

Get your finances in order

It you’re buying and selling at the same time, you don’t have to worry as much about what the market is doing.  Focus on where you want to move to and what boxes you want it to tick.

Talk to your lender about your borrowing capabilities.  You’ll need to know what your loan to value ratio is on your existing property, and a ballpark figure on what it’s likely to be on the new one. An up-to-date evaluation on your house will help determine this, because the chances are, your property value has gone up if you bought it a while ago.

Do some quick research on what other lenders are offering first and approach them for competitive quotes if you don’t think you’re not getting a good deal from yours.

Spruce up your house

Once you’ve dusted off your finances, consider doing a very quick tidy up of your current place.  Now is not the time to launch into full-scale renos, but if you can, a lick of paint, maybe re-sand the floorboards and a professional clean will make a difference. Agent Bridget from Bridget Kraft Property says first impressions are everything when it comes to selling.

“If you know your house is a no-frills house, then the first impression really will be critical to set the buyer’s mood. This is called the ‘curb appeal’ and if your home is not able to look ‘fantastic’ then make it at least look ‘promising’ from the outside,” Kraft says.

Negotiate the settlement period

The length of the settlement period is critical, particularly for anyone wanting to sell and then buy.

Founder and Managing Director of propertybuyer.com.au Rich Harvey, recommends negotiating a longer settlement period when selling your home to give you more time to find your next home and move into it without having to rent elsewhere.

“The settlement period is usually six weeks, but negotiate a longer settlement period to give yourself 10 or 12 weeks.

Kraft says there is no time limit for a property settlement, provided all parties agree. “I’ve seen periods of time at lengths as long as sixty, ninety, or even one hundred twenty days.

Add a special clause

Whatever settlement period you agree on with your buyer, consider including a clause that allows you to bring it forward in the event that you find your new home faster than you expect.

Or if you buy before you sell, negotiate a long settlement on the purchase of the new property and ask for a clause to allow you to bring forward the settlement date.

Bridging finance

If you buy before selling you will need a bridging loan. This allows you to temporarily own both properties by paying your existing mortgage plus interest on the finance for the new home until you sell your old place. In other words, your mortgage debt will be a lot bigger over the bridging period.

Bridging loans are not for the fainthearted.  They often attract higher rates and can include penalties if you don’t sell in the allocated time.  Usually that’s between six to 12 months, so double check this with your lender and read the fine print.

Additionally, you may not qualify for bridging finance if you still owe more than 80 percent of the value of your current home.

Have a back-up plan

Chances are you’ll be able to successfully sell and buy within the negotiated settlement period, but have a backup plan just in case.  You don’t want to feel pressured into buying your next place if it doesn’t feel right.

Before you start the entire process, talk to family or friends about the possibility of living with them for a few weeks, or look at short term rentals on sites like AirBnB.   That way if it does take you a little longer than you think to find your dream home, at least you’ll have a roof over your head.

If you go down this path, remember to budget for storage and the costs of two sets of removalists, but at the end of the day, these costs are relatively minor when compared to a house.

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Learn more about home loans

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

When should I switch home loans?

The answer to this question is dependent on your personal circumstances – there is no best time for refinancing that will apply to everyone.

If you want a lower interest rate but are happy with the other aspects of your loan it may be worth calling your lender to see if you can negotiate a better deal. If you have some equity up your sleeve – at least 20 per cent – and have done your homework to see what other lenders are offering new customers, pick up the phone to your bank and negotiate. If they aren’t prepared to offer you lower rate or fees, then you’ve already done the research, so consider switching.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.