How Long You Should Live In Your Home Before You Sell It
Whether you have lived in your home for 30 years or just moved in last month, 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 homeowners stay in their homes before deciding to sell.
If you've been in your home for less then ten years and are thinking about your next home, 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, we put together a few of the most important factors that you should be aware of.
1. Your Mortgage
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 make money when you sell your home, then your sale price must be greater than what’s left of your mortgage. 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 make money in a shorter amount of time.
Building home equity is important. You’ll want to have a lot of equity built up when you decide to sell. The amount of home equity you’ve obtained depends on any remodeling or renovations you’ve made, as well as your mortgage. If the home you bought was already in tip-top shape, then it may be difficult to build equity except through the passage of time. If you’ve remodeled the kitchen, bathroom, redone the flooring, or made other renovations around the house, then you have probably gained home equity more rapidly.
3. Market Conditions
Are homes selling fairly quickly in your area? Then it is likely a seller's market and you can expect to receive a good price for your home. Or are homes lingering on the market for months and months? Then you have a buyer's market and you may have trouble receiving the price you want. In the Sacramento region we are coming off of years of a strong sellers market. But although things have started to slow down it's still a good time to sell with many homes receiving multiple offers. (Check out local appraiser Ryan Lundquist's recent article on this⬇️) You should also take note of homes near you that are selling. It might seem time-consuming, but don't worry! We always keep track of recent home sales in the area and can send you over an up-to-date market report.
4. You're Out Of Space
Maybe this was the first house you bought when you were expecting your first child and there were only three of you, but now with three kids and two dogs, there isn't much space. Although it may be sad to move out of the home where you started your family, the happiness of your family may be greater than the cost of selling your home and buying a new one.
Other life situations like divorce, illness, or even the need to downsize may also lead you to sell sooner than you originally planned.
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. If you sell through an agent you will be paying a commission (split between your agent and the agent bringing the buyer.) If you sell through an iBuyer you will be paying a transaction fee that is higher than an agent's commission. You will also have to factor in closing costs, such as escrow, title insurance, and city and county transaction fees. Keeping closing costs in mind before you sell allows you to budget this into your expenses and avoid surprises when it comes to closing.