Bridging finance: how to buy your next home before you sell the current one

You've found the right house. The trouble is your current home hasn't sold yet, and the seller won't wait. Bridging finance exists for exactly this situation. Moneysmart describes it as short-term finance that covers the period between buying a new property and selling your existing one. Here's how it works in practice, what it costs, and what to think about before you sign a contract.

How a bridging loan is usually structured

Most bridging arrangements work on the idea of a peak debt. For a period, you owe the full amount on your current home plus the money needed to buy the new one. When your old home sells, the sale proceeds pay down that peak debt, and what's left becomes your end debt, the ongoing home loan on the new place.

Many lenders secure the bridging loan over both properties during the bridging period. Some let interest build up (capitalise) on the bridging part instead of asking you to make repayments on it, so your monthly budget isn't crushed while you carry two homes. Interest still accrues, though, and it adds to what you owe when the sale settles.

An illustrative example

These are round numbers for illustration only.

• Your current home is worth about $500,000 and you owe $200,000.
• You buy a new home for $700,000, plus around $30,000 in costs.
• Peak debt: $200,000 + $730,000 = $930,000, secured over both homes worth $1,200,000 combined.
• You sell for $500,000. After agent fees and costs of roughly $15,000, about $485,000 goes to the loan.
• End debt: roughly $445,000 plus any interest that built up during the bridge.

The lender mainly wants to know two things: can you comfortably afford the end debt, and is the sale price you're relying on realistic?

What lenders look at

• Your end debt and serviceability. Your income needs to support the loan you'll have once the old home is sold. For shift and roster workers, how a lender treats overtime and allowances matters here. Our mining and FIFO home loans page covers that.
• The value of your current home. Lenders normally order a valuation and may apply a buffer to the expected sale price in case it sells for less.
• The bridging period. Lenders set a maximum term for the sale to happen. It varies between lenders and between buying an established home and building.
• Your equity. The more equity in your current home, the more options you tend to have.

The costs to plan for

Bridging finance isn't free money. Budget for:

• Interest on the peak debt for the whole time you hold both homes. If it's capitalised, it reduces what you walk away with.
• Loan establishment and valuation fees, which depend on the lender.
• Selling costs on the old home: agent commission, marketing and legal fees.
• Purchase costs on the new home, including any transfer duty.
• Holding costs on two properties for a while: rates, insurance and utilities.

The main risk: the sale takes longer or brings less

Bridging finance works when the sale goes to plan. If the old home takes months longer to sell, or sells well below your estimate, interest keeps building and your end debt grows. If the bridging period runs out, the lender may want to talk about how the property gets sold.

Ways people reduce that risk:

1. Get a realistic appraisal first. Ask a local agent for a price based on recent comparable sales, then plan around the lower end of it.
2. Prepare the home for sale early. Repairs, a tidy-up and photos ready to go can shorten the time on market.
3. Keep a buffer. Make sure you could still manage if the sale took twice as long as you expect.
4. Know the bridging term. Understand exactly how long you have and what happens at the end.

Alternatives worth comparing

Bridging isn't the only way to handle the timing. Depending on your situation, you could:

• Sell first, then buy. You know your exact budget, though you may need somewhere to rent in between.
• Negotiate a longer settlement on the purchase to give your sale time to complete.
• Make the purchase subject to the sale of your home. Sellers don't always accept this, but it's worth asking.
• Use equity in your current home for the deposit and keep it as an investment property, if the numbers support two loans. See our investment loans page.

If you're building your next home instead of buying an established one, the timing and structure change again, because the bridge has to cover the build period. Our construction loans page explains how that works.

Before you sign a contract

Talk to a broker before you make an offer. Get a conditional pre-approval that specifically covers the bridging arrangement, because a standard purchase pre-approval may not account for carrying both homes. Line up a sale appraisal, and make sure your solicitor understands the plan so settlement dates work together.

In Mackay and the coalfields, where both buying and selling can involve roster workers who aren't always home, building a little extra time into each step helps.

Talk it through

If you're weighing up buying before you sell, we can work through your peak debt, end debt and a realistic sale timeframe with you, and compare how different lenders handle bridging. Call or text us on 0458 773 002, or book a free assessment. For most home loans there's no broker fee; any fee is disclosed upfront in our Credit Guide.

Common questions

Sources

• Moneysmart glossary: Bridging finance

This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: Refinancing.