Should you finalise the sale of your current home before buying a new one? Or should you chance doing both together? Rawson Property Group’s MD, Tony Clarke, says whatever you decide, each will have financial and emotional consequences.
“Most people find it extremely stressful to move house, and would really prefer to know where they are going to live next, when they can take occupation, what size bond they will need and what their new home will cost them each month,” he says. “They also want, if at all possible, to avoid the cost and the major disruption of having to move twice – that is, once to a rented temporary home while they house hunt and then again to their new home.
The “subject to” clause
So disliked is this level of uncertainty that some sellers will buy and move into their new home before they even list their old home for sale, says Clarke. This is, however, a luxury most repeat buyers cannot afford.
The long-accepted way to get around this is for buyers to make an offer for the new property “subject to” the sale of their current home within a certain period.
“This is a ‘buy-first’ move that many repeat buyers prefer because it reduces the fear of having nowhere to live after their existing home is sold – and the likelihood of paying too much for a new home that they have bought in a panic, or of choosing the wrong home altogether because they are in a hurry,” says Clarke. “However, they do need to know that this strategy is not totally foolproof because astute sellers will generally only accept a conditional offer to purchase if it also includes what is commonly called an ‘acceleration clause’ which entitles the seller to continue to market his property to see if he cannot perhaps get an unconditional offer. If he does get such an offer it gives the original buyers only a short period of time (usually a week at most) to revise their offer and make it unconditional too.”
If these buyers are not able to waive the condition that they need to sell their own house first, the seller will in most cases be entitled to accept the second, unconditional offer. The buyers may well have to re-start their search for a new home.
“But if this does happen, most buyers will at least still have their own familiar home to live in, illustrating once again why it is best to avoid selling until the deal on your replacement home is finalised,” says Clarke.
According to mortgage originator, BetterLife, the bank and client each have a couple of options when applying for or accepting a new home loan when there is an existing home with possibly a bond amount owing on it which needs to be sold and/or cancelled.
First of all the client should inform the estate agent that the existing property needs to be sold prior to registration of the new bond. What often happens if clients decide to take this route would be that the property firstly needs to be sold and, secondly, once sold, it needs to be transferred to the new owner and cancelled from the client’s name simultaneously upon registration of the new bond/property.
The client has the option of purchasing a new property where they are not required to sell the existing property. In cases like this, the clients applying for a new bond would need to qualify for both property repayments in terms of the bank credit policies. The bank will not approve a new bond if it feels the client cannot afford both repayments, regardless of whether the existing property is being sold. If this is the case, the bank will often revert to option one where they make a condition of approval that the existing property/bond is sold/cancelled.
In both cases, the client will complete a home loan application over the new bond where he will declare all existing expenses, including the current bond repayment over the existing property. The client and bank will need to decide whether affordability is evident and then decide on whether options 1 or 2 would apply.