Factors to Consider When Deciding to Sell Your Home

Whether you’ve lived in your home for 20 years or you just moved in last week, you can sell it anytime you want. That said, you may want to consider staying put for at least five years before selling. Here’s why. 

Your Mortgage

If you’re hoping to make some money off the sale of your home, you’ll want to live in it longer. This is because, during the first several years of paying your mortgage, a large portion of your payments go toward interest with little going toward the principal. In order to make money when you sell your home, you’ll need to get more than you owe on your mortgage. If you’ve only lived in the home a short while, you likely haven’t paid off much of the principle, which will make it hard to set an asking price high enough to make a profit when it sells. 

Your Home’s Equity

Your home’s equity is the part you truly own. Equity increases as you pay down the principal on your home. It also increases as market values increase or if you make improvements to your home that increase its value. If you haven’t lived in the home for very long, it hasn’t accrued much equity, and you’ll end up owing the bank more than you can get from the sale of your home. 

Capital Gains Tax

If you only live in the home for a short while and then sell, you could be subject to capital gains taxes on the profit you make. This could be as much as $250,000 for single people and $500,000 for married couples. You must live in the home (as a primary residence) for two of the five years before you sell it to avoid paying capital gains tax. 

Market Conditions

If you’re looking to sell your home and the market favors buyers at the time, you may not be able to get as much as you were hoping when it sells. If you aren’t pressed for time, it might be more advantageous to wait until the market favors sellers, so you can get the right price for your home. That said, remember you’ll need to purchase another home when you sell yours. 

Your Financial Situation

Selling a home can be costly. You have seller closing costs, which include prepayments, taxes, title and settlement company fees, and lender costs. These expenses can eat into the profit of the sale of your home. Also, you’ll need to consider any moving expenses and homebuying expenses as well if they apply. 

If you know you’ll be selling, keeping these costs in mind, and saving for them as you live in the house will help you make the most from the sale of your home when it’s time.