When you first bought your home, you likely had a timeline in mind for how long you’d stay. But life doesn’t always go as planned, and you may now find yourself wondering, “How long should you live in a house before selling?”
Selling a home sooner than expected isn’t uncommon, but the decision comes with some tough factors to consider.
In this post, we’ll explore how long you should live in a house before selling, look at the scales of selling costs and proceeds, and provide a set of questions to help you decide if it’s the right time to move on.
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Reasons homeowners sell earlier than planned
There are many reasons why you might find yourself asking how long to live in a house before selling. Here are the top reasons homeowners sell earlier than planned:
- Finances have changed: If your income has increased or decreased, it may affect your ability or desire to stay in your current home.
- Relocation for employment: A job transfer or new career opportunity might require a move to another city or state.
- Need for more space: Your family may be growing, and your current home no longer meets your needs.
- Need (or desire) for less space: Maybe the kids have moved out, and you no longer need as much room.
- Unplanned family change: Life events like illness, a death in the family, or a divorce can force an unexpected move.
- Market creates an opportunity: If property values have risen, you might be able to sell your home for a significant profit.
How long should you live in a house before selling it?
There isn’t a one-size-fits-all answer to how long you should live in a house before selling. However, most experts agree that there are a few key factors to consider, including your home equity and how long it takes to recoup transaction costs. Here are some general guidelines to help you make that decision.
The home equity meter
Building equity in your home is one of the most important factors when deciding how long to stay. Equity is the difference between what you owe on your mortgage and what your home is worth. The longer you live in your home, the more equity you typically build through paying down your mortgage and (hopefully) appreciation in your property’s value.
If you sell before accumulating significant equity, you may have little to show for the sale after covering closing costs, agent commissions, and moving expenses. Ideally, you want to have built enough equity to cover these costs and still walk away with a profit.
The 5-year rule
Many real estate professionals recommend the “5-year rule” as a benchmark. The idea is that you should plan to live in your home for at least five years before selling. This is because the first few years of homeownership are often spent paying off the interest on your mortgage rather than building equity.
By staying for five years or more, you’re more likely to have built enough equity to make selling financially worthwhile. This rule also helps ensure that you’ll likely recover the combined transaction costs (usually around 6%-10% of your home’s sale price) associated with buying and selling property.
Other timeframes to consider
While the 5-year rule is a good general guide, it’s not set in stone. For example, if the housing market is booming, you might be able to sell earlier and still turn a profit. On the flip side, if home values are flat or declining, you may need to stay longer to build enough equity to make the sale worthwhile.
Additionally, if staying in your home may ultimately create other expenses, lost opportunities, or family hardships, traditional timeframes may not apply. You’ll want to look at the bigger picture, and there are ways to improve your home-seller vantage point.
Selling after 1 year: Cost and proceeds example
Here’s an example of the selling costs and net proceeds for someone who purchased a home for $400,000 a year ago with 20% down and needs to sell now, assuming a 5% appreciation rate:
Purchased the home 12 months ago:
- Original purchase price: $400,000
- Down payment: $80,000 (20%)
- Mortgage balance: $320,000
After one year, the home’s value has appreciated to $420,000.
Costs of selling at $420,000 today:
- Listing agent commission: $12,600 (3% of the sale price)
- Closing costs: $8,400 (2% of the sale price)
- Remaining mortgage balance: $315,000 (only $5,000 in principle paid)
Net proceeds after costs and minimal appreciation:
After deducting the agent commission, closing costs, and the remaining mortgage, the seller might walk away with approximately $84,000 in proceeds.
However, considering their original down payment of $80,000, they would actually end up with around $4,000 after just one year. Once you subtract preparation costs, moving expenses, and possible capital gains taxes, it’s likely you will end up with a financial loss.
This example highlights how short-term homeownership, even with some appreciation, can result in a minimal gain or a financial deficit once selling costs are factored in.
5 ‘sell now or wait’ assessment questions
Before making the decision to sell, it’s helpful to ask yourself a few key questions to assess whether now is the right time to make your move.
1. Will the cost to sell outweigh the proceeds?
Selling a home comes with significant costs — agent commissions, closing costs, and possible repairs to prepare the house for the market. If these costs add up to more than the proceeds you expect from the sale, it might be better to wait. Calculating these costs in advance helps ensure you don’t end up in a negative financial position. (More on this in our next section.)
2. Will I lose my capital gains tax exemption?
If you sell your primary residence, you may qualify for a capital gains tax exemption on up to $250,000 (or $500,000 for married couples) of profit. However, to be eligible, you must have lived in the home for at least two out of the last five years. Selling before meeting this requirement could result in paying taxes on the sale, which could significantly eat into your profit.
3. Is the local housing market in my favor?
Understanding your local real estate market conditions is key to making a smart decision. If it’s a seller’s market — where demand exceeds supply — you’re likely to sell quickly and at a higher price. In a buyer’s market, where supply exceeds demand, selling may take longer, and you may need to accept a lower offer. Timing the sale to align with favorable market conditions can significantly impact your financial outcome.
4. What’s at risk if I stay in the home?
Sometimes, staying in your home can have hidden risks, such as further damage to an aging property or financial strain due to changing personal circumstances. If your home needs significant repairs that will only get worse or cost more over time, it might make sense to sell now and avoid further losses. Similarly, if your income has changed and you’re struggling to meet mortgage payments, waiting could lead to bigger financial problems down the road.
5. Can I afford to get into a new home?
It’s essential to look beyond the sale and consider whether you can afford to buy a new home. With mortgage rates, home prices, and closing costs all impacting affordability, it’s crucial to calculate whether you can comfortably manage the transition. This question helps ensure that selling doesn’t put you in a difficult financial position when purchasing your next home.
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How to estimate the cost of selling your home
Regardless of the 5-year rule, there will always be costs associated with a home sale. The difference is that with a sale under five years, the property hasn’t had much time to appreciate, which means the expenses are more likely to cut into (or even erase) any equity, as illustrated in our example above.
As noted, the typical costs associated with selling a house can range from 6% to 9% of the sales price. These costs can include:
- Staging and home prep fees: 1%-4% — though some agents provide staging
- Realtor commission: 3% (higher if you offer to pay the buyer’s agent)
- Closing fees: 1% to 3% (title, escrow, recording, transfer and property taxes)
- Possible seller concessions: 2% to 6%
Along with possible seller credits or concessions, you’ll also need to factor in home inspection and appraisal fees, moving and relocation costs, and your mortgage payoff amount, which will all reduce your sale proceeds.
How to estimate your home sale proceeds
Before deciding to sell, determine how much money you’ll walk away with after the sale. Estimating your home sale proceeds involves accounting for the expenses listed above. Here’s how you can get an estimate:
- Calculate your home’s potential sale price: Look at comparable home sales in your area to get an idea of what your home might sell for.
- Deduct selling costs: Real estate agent commissions and closing costs are the primary costs to consider.
- Subtract your mortgage balance: Whatever you still owe on your mortgage will be deducted from your proceeds.
- Account for other expenses: This could include repairs, staging, or relocation costs.
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