How Long You Should Live In Your Home Before You Sell It
Whether you just moved in, or you have lived in your home for 50 years, it's common to wonder how long you should stay in your home before you sell it. According to the National Association of Realtors®, ten years is the average amount of time that a homeowner will stay in their home before deciding to sell it.
If you're under ten years and itching to sell, many experts say you should follow the “five-year rule” and stay in the same home for at least five years before selling.
This may sound like a long time and you may think you are ready to sell now, but before you make any rash decisions, I put together a few of the most important factors that you should be aware of.
1. Your Mortgage Balance
One of the first and foremost factors you must consider when you decide to sell your home is your mortgage payment. If you want to pocket more money when you sell your home, then your sales price must be greater than what’s left of your mortgage (plus more). When you first buy your home and begin to pay your mortgage, the first few years will go towards interest rather than the principal amount. This typically means that it’s more difficult to make money off your sale under 5 years. However, if you put a larger downpayment on your house, then your interest rate and mortgage will probably be smaller, making it possible to pocket more money in a shorter amount of time.
Building home equity is important. You’ll want to have as much equity as possible when you decide to sell. The amount of home equity you’ve obtained depends on any remodeling or renovations you’ve made, your mortgage balance at the time of sale, and recent sales in your neighborhood. If the home you bought was already in tip-top shape and you didn't get the deal of the century when you purchased it, it will take longer to build equity. If you’ve remodeled the kitchen, bathroom, redone the flooring, or made other renovations around the house, then you could have gained home equity if the cost of those renovations didn't price you out comparable home sales in your neighborhood (speaking with a good Realtor prior to hiring a contractor could save you thousands of dollars). You can also increase your home equity by paying off more of the principal on your mortgage.
3. Market Conditions
One of the more common reasons you’re eager to sell your home is to make money on your property. There are a few things to look out for when deciding if it’s a seller's market and whether or not it's time to make your move. If you notice that the same type of home as yours is selling for more and more money in your neighborhood, chances are that homes stay on the market for a shorter time. It might seem time-consuming, but don't worry! I always keep track of recent home sales in the area and can send you over an up-to-date market report periodically (e.g., weekly, monthly, or quarterly).
Check out my latest market update here.
4. You're Out Of Space
Maybe this was your first home purchase, but now there are other people (and pets) you must consider. Although it may be sad to move out of your first home, your future happiness may be greater than the cost of selling your home and buying a new one.
Other life situations may also lead you to sell sooner than you originally planned. That's why I don't believe in the concept of a "Forever Home," as your situation almost never stays the same.
5. Capital Gains Tax
If you don’t qualify to avoid paying capital gains taxes on the sale of your home, you may not want to sell your home yet. To avoid capital gains taxes, you should make an effort to stay in your home for at least two to five years. Making a sale before two years could be a huge mistake, and could ultimately leave you without much equity, especially if you have to pay capital gains tax.
6. Closing Costs
Closing costs are often overlooked but play an important part when it comes to selling your home. When I speak with a prospective homeowner about selling their home, included in my market analysis is a "Net to Seller" sheet. This document indicates what they could expect to earn, or owe, after all mortgages, taxes, commission, and fees are paid by the title company on your behalf at closing. If you'd like to use a ballpark number, that cost (excluding mortgage balances) should be 7% of the sales price. Keeping closing costs in mind before you sell allows you to budget this into your expenses and avoid surprises when it comes to closing.