How Long You Should Live In Your Home Before You Sell It
Whether you just moved in or 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 move, 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 down the mortgage, the first few years of payments will go primarily towards interest rather than the principal amount. This typically means that it’s more difficult to make money from your sale in the first 5 years. However, if you put a larger down payment on your house, then your interest rate and mortgage will probably be smaller, making it possible to make a profit in a shorter amount of time.
Building home equity is important. You’ll want to have as much equity as possible built up when you decide to sell. The amount of home equity you’ve obtained depends on market appreciation, as well as any remodeling or renovations you’ve done, in addition to your mortgage payment pattern. If the home you bought was already in tip-top shape, then it may be difficult to build as much equity. If you’ve remodeled the kitchen, bathroom, redone the flooring, or made other improvements around the house, then you have most likely gained a good amount of home equity. You can also increase your home equity by paying off more of the principal on your mortgage using your lender's prepayment privilege.
3. Market Conditions
If you are considering selling your home, it is likely that you believe you will make money on your property. There are a few things to look out for when assessing whether it’s a seller's market, and whether or not it's time to make your move. If the price per square foot in your area is increasing, chances are that demand is high and homes are on the market for a shorter time. Take note of homes near you that are selling. This type of research might seem time-consuming, but don't worry if you need a little help from an insider! We always keep track of recent home sales in the area and would be more than happy to send you over an up-to-date market report.
4. You're Out Of Space
Maybe this was the house you bought when you were expecting your first child and there were only three of you, but now you've expanded the family and have three kids and two dogs. There isn't enough space anymore. Although it may be bittersweet to move out of the home where you started your family, the need for comfort and privacy 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
The good news is that most people still don't have to pay capital gains taxes when selling a principal residence (provided they are Canadian residents and otherwise satisfy certain requirements under the new rules). Now, though, you will need to include some details about the sale on your tax return for the year in which it happened. If you don’t qualify for the exemption on capital gains taxes, you may want to consider delaying the sale. To reduce capital gains taxes, you will likely need to make the house your principal residence for at least one year.
6. Closing Costs
Closing costs are sometimes forgotten, but play an important part in the decision when it comes to selling your home. On average, real estate agents have a commission rate of 5%. Other costs include lawyers, mortgage penalties etc. You are also likely to pay a closing cost when buying your next home, which can run between 3%-6% of the purchase price. Budgeting for closing costs makes your math more accurate and helps you to avoid surprises on closing.