Similar to the chicken and egg scenario, one of the greatest decisions when selling property is: do you sell before you buy or buy before you sell?
There’s a few points to consider if you’re in the market for a new home, especially if you are considering the subject to sale option.
Finances
Depending on your financial capacity, buying a property before you sell your existing home is a good position to be in. It gives you the option to search for something that meets all of your needs without any time pressures.
But for most of us, this scenario is not possible. There’s not many who have the financial ability to stump up for two mortgages at the same time, so it’s important to crunch the numbers before you take the plunge and make an offer on your dream home.
Subject to sale
One way to buy before you sell without having to simultaneously fund two mortgages is to include a “subject to sale” clause in your offer. While this can be a solution, there are some underlying issues that mean a “subject to sale” clause might not be all it’s cracked up to be.
For example, you can’t be absolutely sure how long it will take to sell your home so there’s going to be an element of uncertainty if you’re traversing this path.
It’s also possible for the seller to instate a 48-hour clause, which means that the vendor can continue to market the property and stage home opens as if your offer is not even on the table. If the vendor receives an offer from another buyer, they are well within their rights to accept it but will give you a period of 48 hours to make your offer unconditional.
Alternative offers can be especially enticing if they’re a cash offer, even if it’s of a lesser value as it may be perceived to be less of a risk than an offer that relies on sign-off for a new loan.
How to avoid the Subject to Sale scenario
Put simply if you are submitting your offer on your dream home subject to sale, prepare yourself to be disappointed. If you are in competition with other buyers your offer is automatically the lowest ranking offer.
The good news is that there are other options for you to consider.
Bridging finance
Bridging finance is a short term loan that can help you finance the purchase of a new property while you sell your current property.
It allows you to buy a new home without having to include a subject to sale clause in the offer for your new home.
It is effectively a second short time mortgage at a higher rate.
What if I don’t have an income?
There are also financial providers who can offer a similar solution to a bridging finance even if you have no income.
No proof of income is required, however, they will charge an upfront fee and then depending on the length of the loan a fixed percentage of the loan value.
For questions in relation to bridging finance or similar you should speak with a mortgage broker.
If you do not have a mortgage broker contact Paul Gregory from Ethical Homeloans on 0411 072 626
Get your ducks in a row
It’s widely accepted that the best process is to list and sell your existing home before you make an offer on a new abode. That way, you’re not overextending yourself or adding to what can already be a stressful situation.
Ensure your finances meet your expectations for your dream home. Take the time to speak with you mortgage broker or bank about how much you owe on your existing home, what equity you have and how much you can borrow.
Research real estate agents and speak to some trusted Perth agents to get an idea about how much your property is worth in the current market. It’s also worth conducting your own inquiries about the prices of similar properties in your neighbourhood.
What if I sell before I buy?
There are a few things to consider if your home gets snapped up before you find a new property.
- Request a long settlement. Usually, settlement periods are between 21 to 28 days once finance is unconditionally approved. But it’s worth trying to negotiate a longer settlement if you don’t have a new place to call home
- Is it possible to rent your home back? If you’re hopeful of becoming a tenant in your own home, include a condition on the offer and acceptance agreement for the buyer to consider.
- It might not be an ideal situation but you might want to consider moving in with family or friends or to a rental property as a short-term solution until you find the next home you want to purchase. It might be an opportunity to pay no or minimal rent and save more towards your next bricks and mortar investment.
How is your property value tracking in this shifting market?
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