Bridging Loans: Should You Buy or Sell First When Moving Homes?

Many homeowners face a common dilemma when upgrading to a new property: should you sell your current home first or buy a new one first? What happens to your mortgage in the transition? If you’ve explored your options, you’ve likely come across bridging loans—a financial solution designed to help you secure your next home while selling your existing one.

What Is a Bridging Loan?

A bridging loan is a short-term financing option that helps homeowners purchase a new property before selling their current one. Most people sell their home first and use the proceeds to buy their next property. However, buying first may be a more suitable option in some cases.

If you’ve found your dream home but haven’t sold your current property yet, a bridging loan covers the financial gap between the two transactions. This temporary loan acts as a “bridge,” allowing you to buy now and repay the loan once your existing home is sold.

Key Considerations for Bridging Loans

Before applying for a bridging loan, consider the following:

✓ Dual Mortgage Payments: You’ll need to manage both your current mortgage and the bridging loan simultaneously.
✓ Loan Eligibility: Lenders require proof that you can afford the interest payments during the transition.
✓ Repayment Period: Bridging loans typically have a 12-month repayment timeframe, meaning you must sell your property within this period to avoid financial strain.

When Is the Best Time to Sell Your Home?

Timing your property sale strategically can impact your financial outcome. Here are key factors to consider:

Seasonal Market Trends

Spring: The busiest season for real estate, offering the highest number of listings and active buyers.
Winter: Fewer homes are on the market, meaning less competition and increased visibility for your property.

Market Conditions

Seller’s Market: High demand and low supply favour sellers, allowing for faster sales at higher prices.
Buyer’s Market: More homes are available than buyers, which can lead to longer selling times and price negotiations.

Monitoring local real estate trends, weekly sales data, and interest rate changes can help you determine the best time to list your home.

Should You Sell First or Buy First? Do You Need a Bridging Loan?

Option 1: Sell First, Then Buy

✔ Pros:

You’ll know exactly how much you can afford for your next home.
No pressure to rush your purchase—you can wait for the right deal.
Avoid the costs of a bridging loan and paying interest on two loans.

✘ Cons:

Your ideal home may not be available when you’re ready to buy.
You might need to rent short-term, leading to extra moving and rental costs.
Rising property prices after selling could increase the cost of your next home.

Option 2: Buy First, Then Sell

✔ Pros:

No need for temporary housing or multiple moves.
More flexibility to find the perfect home without time pressure.
If the market is rising, you might sell at a higher price later.

✘ Cons:

Requires a bridging loan, which comes with higher interest rates.
Managing two mortgages at once can be financially stressful.
If your old home takes longer to sell, repaying the loan within 12 months could be challenging.
Conditional offers may need to be higher to persuade sellers to wait.

How to Reduce the Risks of Buying First

If you choose to buy before selling, here are some strategies to ease the transition:

✓ Negotiate a Longer Settlement: Extend your selling timeline to secure your next home.
✓ Request a Rent-Back Option: Ask the buyer if you can rent your old home for a short period.
✓ Stay with Friends or Family: Save on rental costs and use storage facilities if needed.
✓ Short-Term Rental: Renting a furnished home can reduce moving hassles and expenses.

Is a Bridging Loan Right for You?

Every financial situation is unique. Before committing to a bridging loan, consult a mortgage broker to evaluate your options. They can help you find the best financing solution based on your income, loan eligibility, and market conditions.

By understanding the pros and cons of selling first vs. buying first, you can make an informed decision that aligns with your financial goals and lifestyle needs.

Visit our website for more details: openmortgage.au