Buying a Home Before Selling Yours in Victoria? The Deposit Trap Most Homeowners Don't Expect

You've been thinking about making a move for a while. Perhaps the family home in Gordon Head feels a little too large now that the children have moved out. Or maybe your growing family needs more space, and you've been looking at homes in Cordova Bay or Oak Bay.

Then it happens. You find a property that seems perfect.

It's in the right neighbourhood, the layout works beautifully, and you can already imagine yourself living there.

There's just one complication: you haven't sold your current home yet.

With considerable equity in your existing property, you might assume that purchasing your next home won't be a problem.

But there's an important financial detail that often catches homeowners by surprise.

A Realistic Victoria Homebuying Scenario

Imagine a couple who have owned their Gordon Head home for 25 years.

Their property is now worth approximately $1.3 million, and they have a relatively small mortgage remaining.

They've decided they'd prefer a townhouse in Broadmead or Royal Oak, somewhere with less maintenance but still plenty of space for visiting family.

After looking at several properties, they find a lovely townhouse listed at $850,000.

They make an offer, negotiate the terms, and the seller accepts.

The contract requires a 5% deposit when their conditions are removed.

Suddenly, they need $42,500 in available funds.

They have substantial equity in their current home, but most of it is tied up in the property.

They weren't expecting to need that much cash before their home sold.

This is why planning the financial side of your move should happen before you start making offers.

Understanding the Difference Between a Deposit and a Down Payment

These two terms are often used interchangeably, but they serve different purposes.

The Deposit

A deposit is money paid as part of the purchase contract. It demonstrates the buyer's commitment to the transaction and is generally held in trust by a brokerage.

In British Columbia, the amount and timing of a deposit are negotiable. A 5% deposit is a useful illustration, but it isn't a legally required amount for every purchase.

Depending on the contract, the deposit may be payable shortly after acceptance or after conditions are removed.

The Down Payment

The down payment is the amount of your own money being contributed toward the purchase rather than borrowed through your mortgage.

The deposit you've already paid normally forms part of that down payment.

The balance of your required funds is generally arranged for completion through your lawyer or notary.

For homeowners who are relying on the sale proceeds from their existing property, the timing of these payments is critical.

Can You Use Bridge Financing to Buy Before You Sell?

Bridge financing is often mentioned when homeowners are purchasing one property while selling another.

It can be an excellent solution in the right circumstances, but it's important to understand how it works.

Bridge financing is a short-term loan designed to cover a gap between the completion of your new purchase and the completion of your existing home's sale.

For example:

• Your existing home has sold, with completion scheduled for June 30.
• Your new home purchase completes June 15.
• You need access to some of your sale proceeds 15 days before receiving them.

Bridge financing may help cover that temporary gap, subject to lender approval.

And even when bridge financing is available, you need to confirm exactly when funds can be advanced. A loan arranged for completion may not solve a deposit payment that's due weeks earlier.

Before relying on bridge financing, speak with your mortgage professional about eligibility, interest costs, repayment requirements and timing.

What Are Your Options If You Want to Buy Before Selling?

There's no single strategy that works for everyone. The best approach depends on your financial position, your current property, the type of home you're purchasing and your comfort with risk.

Option 1: Sell Your Current Home First

This is often the most financially predictable approach.

Once your home has sold firmly, you'll have a clearer understanding of your available equity and the funds you can put toward your next purchase.

You can then search with greater confidence, knowing what your budget looks like.

The trade-off: You may need to negotiate a longer completion period, arrange temporary accommodation or find a suitable property within a particular timeframe.

Option 2: Purchase Subject to the Sale of Your Existing Home

Depending on the seller's circumstances, you may be able to negotiate an offer conditional on selling your current property.

This can give you an opportunity to secure your next home while working toward the sale of your existing one.

However, these offers can be less attractive to sellers because the transaction depends on another sale.

Some contracts also contain a time clause allowing the seller to continue marketing the property and requiring the buyer to act within a specified period if another acceptable offer arises.

It's essential to understand exactly how the conditions and any time clause operate before signing.

Option 3: Arrange Financing Before Purchasing

Some homeowners may be able to arrange access to funds through existing savings, a secured line of credit, refinancing or another lender-approved arrangement.

However, these options have costs, qualification requirements and potential risks.

Borrowing against your existing property can affect mortgage qualification and your ability to carry two properties.

It is important to confirm your options with a qualified mortgage professional rather than assuming your equity is immediately available.

Comparing Your Options

What If Your Current Home Doesn't Sell as Quickly as Expected?

This is another important consideration.

Even when a home is well priced and professionally marketed, there is no guarantee it will sell within a particular timeframe.

Imagine purchasing your next home expecting your current property to sell within a month.

But after several weeks, you haven't received an acceptable offer.

You could be facing:

• Two mortgage payments, if applicable
• Property taxes, insurance and utilities on two homes
• Strata fees on your new property
• Additional financing costs
• Pressure to reduce your asking price
• Potential contractual consequences if you cannot complete your purchase

These costs can add up quickly.

Before purchasing, it's worth considering what happens if your home takes 30, 60 or 90 days longer to sell than anticipated.

A realistic contingency plan is just as important as an optimistic timeline.

Does BC's Three-Day Cooling-Off Period Protect You?

British Columbia has a Home Buyer Rescission Period that generally gives purchasers of eligible residential properties three business days after an accepted offer to rescind the contract.

However, exercising that right requires paying the seller a fee equal to 0.25% of the purchase price.

For an $850,000 property, that would be $2,125.

There are also exemptions to the legislation, and the rescission period runs independently of any contractual subject conditions.

The cooling-off period should never be treated as a replacement for appropriate financing or sale conditions.

For more information, visit the BC Financial Services Authority's explanation of the Home Buyer Rescission Period.

Why This Matters for Victoria Homeowners

Across Greater Victoria, many homeowners have built considerable equity after years of ownership.

In neighbourhoods such as Gordon Head, Cordova Bay, Cadboro Bay, Oak Bay and Broadmead, it's not unusual for longtime owners to be considering a different type of home for their next chapter.

Some are downsizing to townhomes in Royal Oak or Sidney. Others are moving closer to amenities in Fairfield, Fernwood or Esquimalt.

Growing families may be moving in the opposite direction, selling a condo or townhouse to purchase a larger detached home in Saanich.

Although the circumstances are different, the same financial question applies:

Understanding this early can make the entire moving process less stressful.

Five Questions to Ask Before Making an Offer

1. Where will the deposit come from? Confirm that funds will be available by the contractual deadline.
2. How much equity will actually be available? Consider mortgage repayment, selling costs and other expenses.
3. Can you qualify to carry both properties? Speak with your lender or mortgage broker before making commitments.
4. What happens if your current home takes longer to sell? Understand the financial and contractual consequences.
5. Which conditions and dates should be negotiated? Work with your REALTOR to develop an appropriate offer strategy.

Dawn's Take: A Little Planning Can Make a Big Difference

Frequently Asked Questions

Planning Your Next Move in Greater Victoria?

Whether you're downsizing from a longtime family home, moving to a larger property or relocating to another Victoria neighbourhood, it's worth understanding your options before you start making offers.

Knowing your home's likely market value, estimated selling costs and available equity can help you make informed decisions about your next purchase.

You don't have to have everything figured out before starting the conversation.

Helpful Resources

• RBC: Understanding Bridge Financing
• BCFSA: Home Buyer Rescission Period
• Government of BC: Buying and Selling a Home

Disclaimer: This article provides general real estate information for British Columbia and is not legal, mortgage or financial advice. Financing availability, deposit requirements and contractual obligations vary. Consult qualified professionals about your circumstances.