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.
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 lower, 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. As defined by The Balance, equity 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 due to a strong local real estate market and improvement projects you make, such as remodeling the kitchen or bathroom, redoing the flooring, and other renovations that have a 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.
CAPITAL GAINS TAX
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 before the sale to be exempt from paying capital gains taxes on your sale's profits — which could cost up to $250,000 for an individual or $500,000 married couples.
THE MARKET CONDITIONS
Another thing to look out for is your local market condition, 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 increasing 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.
YOUR FINANCIAL SITUATION
Besides 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, varying 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 will 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.