Buying a House Before Selling: The Pros, Risks & Smartest Strategies

If you’re a home owner and want to change your home — for an upgrade, downsizing, to find a bigger space for yourself and your family, or moving to a better neighbourhood — the big dilemma is whether you should buy the new home first or sell first?

Both situations come with advantages, risks and challenges. Many homeowners, however, prefer buying a house before selling. In this guide, we will offer some advice on why homeowners would choose to buy first and then sell their current home. We will discuss the risks involved — and how to manage them smartly.

Buying First vs. Selling First: A Quick Comparison

Here is a quick comparison between whether you should buy first or sell first. While this blog focuses on the strategies for buying first, this quick overview of different factors can give you a glimpse into what the two options look like: 

Pro Tip: If the market prices are rising fast, buying first can help you secure a lower price before property values increase further

Pros of Buying Before Selling

The advantages of buying your new home before selling your current one include: 

• Avoid temporary housing hassles – No need to move twice.
• Secure your dream home in a competitive market – Less pressure to settle.
• Renovate before moving in – You can renovate your new home while living in your current one.
• Take advantage of rising markets – Buy at a lower price before property values increase.

The Risks of Buying Before Selling and How to Protect Yourself

Legal risks:

• Settlement Commitments - you must settle your new home even if your current one hasn’t sold. If you don’t have the funds ready, you risk a penalty. 
• Capital Gains Tax (CGT) - You’re eligible for a full Main Residence Exemption (MRE) for 6 months if you acquire your new home before selling your old one. If you miss this 6-month window, it can trigger tax liabilities. 

How do you protect yourself? 

Ask for:

• Put an extended settlement period in your purchase contract. If the market is slow, the extended settlement period (sometimes even up to 120 days) can give you a little extra time to sell your current home. 
• Get pre-approval for a second mortgage. Speak to a mortgage broker or a lender to understand your equity and borrowing power. This will help you decide between the different financing options. Ensure your financing is in place before making any offers. 
• Have a financial safety net. Make sure you have enough savings to cover any hidden costs. A real estate agent and mortgage broker can help you understand what this amount would look like. 
• Don’t forget the 6-month window for CGT and keep some extra funds aside in case you need to pay it. 
• Use contingency clauses on the purchase contract of your new home. These will reduce the financial risk. If your home sells first but you need time before moving into your new home, negotiate a leaseback agreement, which may allow you to rent your current home from the buyer. 

Financial Risks

• Dual Mortgages: If your current home doesn’t sell quickly, you could face two mortgage payments, which would strain your cash flow. 
• Pressure to Sell: You may be forced to accept lower offers just to ease financial stress and complete the sale quickly. A drop in property value could leave you short on funds to pay off your old mortgage.
• Borrowing Limits: Carrying two mortgages may reduce your borrowing capacity, risking your new loan approval.

How do you protect yourself? 

• Be conservative on the purchase price as you don’t know what your current home will sell for. 
• Always have emergency funds available or a backup loan to cover 2 mortgage payments. Emergency funds can cover you if your current home takes longer to sell than expected or if you need to rent short-term to avoid rushing into a bad sale. 
• Negotiate a longer settlement period on the new property. This will give you some buffer time to sell. 
• Avoid prolonged selling delays. Working with a skilled real estate agent who knows the area can help you set a realistic sale price based on market conditions. To help speed this process along, make sure you have professional photos and listings ready. The goal here is to ensure that your home is not sitting on the market for too long. You can also negotiate a shorter settlement period on the sale so you receive your funds sooner. 
• If the sale is delayed or the market is slow, do not accept offers out of desperation. Rent out your current home to help with the cost of the 2 mortgages and the extra CGT. 
• Avoid emotional purchasing. 

Financial Strategies: How to Afford Buying Before Selling

Bridging loans

These are short-term financing options to help you cover the cost of your new home. If you find the perfect property, a bridging loan can help you secure the new property on time, while you wait for the sale of your current one. In a competitive real estate market, this is particularly useful as it helps you avoid losing out to other buyers when you’re purchasing your dream home. Depending on the terms of your bridging loan, you can have the option of repayment when the existing property is sold. This reduces the financial strain of having to carry two mortgages - one for your old property and one for your new home. Speak to a mortgage broker and to your specialist for expert advice on your loan. 

The downside of a bridging loan is that they come with higher interest rates and a shorter term (generally, a maximum of 12 months). If your home does not sell within a few months, you risk the added pressure of bridging loan repayment, along with your current mortgages. There are limited lender options and strict eligibility requirements for bridging loans. It’s best to speak to a mortgage broker to help you find the right option. 

Home Equity Loans or Line of Credit Home Loans (HELOC)

A line of credit loan allows homeowners to borrow against the equity built up in their home. Instead of receiving a lump sum, borrowers can draw funds as needed. You can use the equity to make a deposit for your purchase. Personal financial situations and market conditions can help you decide how much you need to borrow and when. Many Australian banks and lenders offer these. Check with a mortgage broker, real estate agent or your lender. 

Contingency Clauses

A contingency clause can allow you to back out if your home doesn’t sell or your financing falls through. While some sellers may prefer buyers with unconditional offers, buyers in a slower market are more willing to wait. 

Your can ask for the purchase of your new home to be conditional on the successful sale of your current home within a specified time. If the home doesn’t sell on time, you can back out without a penalty. This reduces the risk of carrying two mortgages at once. You can also negotiate a longer settlement for the new property, allowing you more time to sell your current home without needing more financing, like a bridging loan. 

Deposit Bonds

A deposit bond is a financing option that allows you to secure your new property without paying the cash deposit upfront. Instead of you paying the 10% cash deposit, the seller receives a guarantee from a provider to pay it at settlement. Deposit bonds are helpful when you’re buying before selling. They allow you to commit to your new property while waiting for your current home sale. While not all sellers accept them, in a slower market, this makes your offer more competitive. They're ideal for those with strong finances but limited liquidity.

Common Mistakes to Avoid

• Overestimating how quickly your current home will sell and what it will sell for. Depending on the market conditions, you make have to accept a lower offer or wait it out till the market picks up again. 
• Not getting pre-approval for a loan before making an offer. Make sure the finances and loan amount for your purchase are in place before you make an offer. Otherwise, you risk penalties. 
• Underestimating the costs of holding properties. People forget to factor in the tax and legal implications if the sale of your current home is delayed. From needing to rent out your current property to hidden costs of utilities and renovations, you need a real estate agent or property manager to guide you through the process and help you prepare for these costs. 
• Failing to have a Plan B. With property sales, you need to have a contingency plan. Whether it’s renting or leasing back your current property, make sure you have a backup plan in place and professional help in the form of real estate agents, property managers, financial advisors. 

Conclusion: Should You Buy First or Sell First?

Buying first can be a smart move—but only if you plan your finances, understand the risks, and have a selling strategy in place. If you’re unsure, consult with a real estate agent and financial advisor before making a decision. Looking to sell your current home? Contact Independent Property Group for expert guidance on buying before selling!