5 Factors To Consider When Deciding How Long You Should Live in Your Home Before You Sell

Whether you just got your house keys last week or you've lived in your home for almost 20 years, you could always sell your home whenever you want. However, experts strongly advise homeowners to follow the “five-year rule” — stay in the same home for at least five years before selling.

According to the 2019 Zillow Group Consumer Housing Trends Report, at least 62% of homeowners stay for more than 10 years, while the median number of years a seller stays in a home is 14. These figures may seem like such a long time, especially if you're itching to sell ASAP or you think you’re more than ready to sell anytime soon. Here we’ll discuss some of the most important factors you should be aware of before making any rash decisions and putting up a “For Sale” sign.

Who doesn't want to make money on the sale of their home? But if you want to maximize your profit, then your sale price must be greater than what’s left of your mortgage. During the first few years of your mortgage, a huge part of your payment goes towards interest rather than the principal. This makes it more difficult to make money off your sale if you’ve lived in the home for less than five years. The only exception would be if you purchased your home with a larger down payment, then your interest rate and mortgage amount will probably be smaller so it’s possible to make money in a shorter amount of time.

Your home equity is also an important factor to consider before deciding to sell. Equity, as defined by The Balance, is the portion of your property that you truly “own” and is a homeowner's most valuable asset. Simply put, your equity is the difference between the home’s market value and what you owe in your mortgage. 

You build home equity through paying off more of the principal on your loan. If you sell too soon, you won’t have enough accrued equity and you’ll be paying more to the lender than what you’ll earn on the home’s sale.

Your equity also grows when your home appreciates in value due to a strong local real estate market and improvement projects you make, such as remodelling the kitchen or bathroom, redoing the flooring, and other renovations that have higher return on investment. It’s best to take on these projects slowly as you live in the home so you can maximize your profit when it’s time to sell.

How long should you live in your home before you sell? It may be best to stay put for at least a couple of years if you want to avoid paying hefty taxes. The home must be your primary residence for a minimum of two of the five years prior to the sale to be exempt from paying capital gains taxes on the profits of your sale — which could cost up to $250,000 for an individual or $500,000 for married couples.

Another thing to look out for is the condition of your local market, which can also make a huge difference especially if you're eager to make more profit. If you want to sell now and your market currently favors buyers, you may not get a higher sales price than you intended. Waiting for a stronger seller’s market would be wiser, where there’s a higher demand among buyers thus an increase in home prices, but it may take a long time to wait for such. Don’t forget that you will also need to purchase a different home once you list your house for sale.

Aside from the costs associated with selling your home, you also need to consider your home buying and anticipated moving costs. Seller closing costs often include taxes, prepayments, lender costs, and title and settlement company fees which can vary by location. 

These costs can eat a lot of your target profit, especially when you're selling and buying in a short period of time. Also, it’s going to take some time for your property’s value to increase to cover these transaction costs. Keeping these expenses in mind before you sell is crucial because it will allow you to assess your financial situation and how you can make more money from your biggest investment—your beloved home.