Yes, you can use home equity to fund your dream home and it can be well worth it. 

While it might seem risky to buy your next home before your current one goes on the market, there are advantages that will be right up some people’s alley. Whatever you choose in the end, it’s important to know the options so you can find the best approach to smoothly transition to your next home.

Traditionally, buying before selling has been a bit of a no-no. The standard procedure was to sell your home, pocket your deposit to use as your own down payment and spend the time until settlement securing a new place to live.

This does present a few problems:

• You only have the settlement period to find and sign on to your new home
• You need to hope that the new property vendor is willing to offer a settlement period to match so you can transfer the funds from the sale, into the purchase. 

Whew, if it sounds like hard work, it is, as well as packing, working out insurance, redirecting mail and connecting and disconnecting all your amenities, by the way.

E-Conveyancing can help

Luckily, modern technology can help. Conveyancers should all be using e-conveyancing now, this online system is significantly more accurate and efficient for transferring property titles than the old paper method. 

As well as this, e-conveyancing is great for timing your sale and purchase for the same day, and it’s detailed enough to be able to space your sale and purchase close together for smooth sailing. 

What’s changed with selling methods?

There is a bigger push than ever for sell now and buy later methods, which has opened up new lenders in the market to meet demand. The big reasons for the shift in buying and selling preferences are:

• More sellers and buyers than ever!
• Big prices - everyone wants to cash in
• Tree change - sell big and buy small. We’ve seen a massive exit from the cities with people raking in on big prices and heading to the country where they can buy a bigger property, on bigger land, for significantly less, so it’s downsizing precise, and upsizing lifestyle so you can have that extra bathroom, extra bedroom or home office, for less!
• Downsizing - we’ve also seen people who’ve been reluctant to downsize or sitting on the fence a bit take the dive and sell with prices being this tantalising.

While less conventional, buying now and selling later is gaining traction as a beneficial option, especially in a tough market where you might get left behind at multiple auctions and sales before finally securing the home you want.

You simply don’t know how long it will take anymore to get your hands on your own SOLD sticker.

It certainly is stressful competing for a new home purchase with a tight turnaround, and if you get stranded and need to rent, even for a short time, it can really hurt your savings.

What are the benefits of buying now, and selling later?

It’s well worth looking at the current market performance to see how quickly you might be able to secure a new home. In a hot market (a seller's market) you might sell your home in less than a week, but buying a property with all that competition from other frantic buyers can be difficult. Once you have a good understanding of the market, you can weigh up the benefits of buying first, and selling later.

It reduces pressure

If you sell first you only have the settlement term (usually 90 days max) to secure your next home. If there are plenty of great properties on the market and selling slowly, great, if prices are soaring and properties are highly desirable, you may feel a lot of pressure about buying in time, this can lead to buying a property you don’t really love, or seriously overspending to be first in line. FOMO (fear of missing out) can really play in big when the clock is ticking. 

Buying first means you can take your time, check a property over carefully, make offers at your own speed and not succumb to high emotion if you are passed over.

It focuses your funds

Once you know your purchase price, you know exactly what price you need to sell your current home for. This internal confidence can really help you hold your ground during price negotiations. As long as your real estate agent agrees that your property has that much worth, you will find you have nerves of steel when push comes to shove, and other buyers might crumble at the thought of a buyer walking away.

You may get bigger profits

While a white-hot property market might force your hand to buy first, sell later, it can also really work in your favour. In a hot market property prices climb visibly week by week, so if you take a three-month break between buying and selling, you can actually see a much bigger sale price for your current home than you would have three months prior. At the same time, you won’t be losing out going the other way, getting a great price for your home, only to have to pay even more with the increase on your next home.

How can I afford to buy property before I sell?

There are a number of different ways to make buying first work, the best method for you depends on your circumstances.

Get it in writing

Your conveyancer comes into play to help reduce the risks and take the pressure off by making sure iron-clad terms are included in the sale contract on the property you purchase. These terms mean the finances are dependent on the sale of your current property. 

This can also give you some wiggle room if you need a few more days to get to settlement at the last minute.

If things don’t work out, this gives you the ability to back out of your purchase contract.

Use your home equity

Home equity is a great option for those downsizing or tree changing as any significant payments that have been made towards the mortgage can be used to fund the next purchase.

In this case, your lender will secure your new loan using your house as collateral, if you fail to make your repayments, it gives them the right to sell your home and take what you owe from the sale price. While this sounds scary, it doesn't happen very often as people usually find a way to refinance their homes and find a new payment system that matches their finances.

This value would be available to use as a loan even without selling the property.

Look for the right lender

If you don’t have enough equity in your home or you are upsizing, rather than downsizing, then the right lender can help. While a traditional lender probably isn’t the best call in this case, new lending methods are emerging that offer bridge loans.

These give you the flexibility to sell your home and have as long as six months to buy your next one with a temporary loan to cover the difference.  While fees are higher than leveraging ones, you can also find interest free periods within the loan period, potentially making this option a winner for the right applicants.

If you are looking to buy and sell the property at the same time, or buy now and sell later, talk to your conveyancer early on about your goals so they can be sure you have the legal backing in both your purchase and sale contracts to make it happen.

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