When a person buys a home, they might want to know how soon you can sell a house after buying it. They purchased the home, and now they’re contemplating if they should sell. However, several questions arise before they put their home on the market.
Is there a certain amount of time a person should wait before selling? Are there consequences if a homeowner sells early? As you continue reading below, we’ll address how soon you can sell a house after buying it, reasons homeowners sell shortly after purchasing, the consequences of selling a home too soon, and if you can sell a damaged home.
How Soon Can You Sell a House After Buying It?
It’s a question often asked by potential buyers, “How soon can you sell a house after buying it?” After buying a home, there are several reasons why a homeowner may want to sell their home soon after buying it, especially if the money is going towards buying their next home.
When an owner sells their house soon after buying, this can mean losing money, dealing with capital gains taxes, or even paying mortgage repayment penalties. In today’s competitive market, many homeowners choose to stay in their residences longer to gain equity. As of 2022, homeowners are staying in their homes for ten years or longer before selling.
All of these reasons are why we have what’s called the “five-year rule.” According to the five-year rule, a homeowner shouldn’t sell their home until they’ve lived there for five years. However, due to unexpected situations and unprecedented times, a homeowner may need to sell their house sooner than expected.
The Five-Year Rule
It’s common knowledge that a seller won’t break even on their investment if they sell their home before the five years are up. This is due to the transaction costs that are involved when first buying a home. Transaction costs, such as money spent on home improvements and the time spent waiting for the home’s market value to increase.
Due to housing booms, some rules can be broken. With home prices continuing to increase, homeowners may be able to sell their homes before the five years are up without losing money. Sometimes, homeowners don’t always sell their homes for a profit.
Another reason why someone may ask, “How soon can you sell a house after buying it” might be due to unexpected reasons, some of which are out of their control.
The 2 out of the 5 Year Rule
The two out of the five-year rule says that a homeowner must live in the home at least two out of the last five years following the date of the sale. If the homeowner doesn’t meet the requirement, there are some exceptions to the rule, which include:
- Change of employment
- Health emergencies
- Death in the family
- Loss of employment
- Natural disaster
If a homeowner qualifies, they’ll receive a partial exclusion based on the two years lived in the home.
Reasons Homeowners Sell Shortly After Buying
Personal Circumstances
Sometimes when a person gets offered a job in a different area, this is a significant life change that can impact where they’re living. When health emergencies arise, so will medical bills and unexpected expenses. This may cause a person to sell their home to free up equity.
Financial changes are another reason homeowners sell shortly after buying. If someone loses their job or their bills unexpectedly increase, they may not be able to afford their mortgage payment.
Buyer’s Remorse
Believe it or not, some people have buyer’s remorse shortly after buying a home. At the time of the walk-through, the home may have seemed perfect, but now they’ve moved in, and it’s not what they’ve pictured. A homeowner may have also bit off more than they could chew with their mortgage payment.
Attractive Offers
If the housing market is booming in a particular area and there are more buyers than homes, a homeowner may receive an attractive offer. In the event the offer is too great to decline, the homeowner may want to sell their home earlier than planned.
Neighborhood Changes
When someone purchases a home, the neighborhood is one of the one main selling points. At the time, a neighborhood may have once been appealing and safe; however, they’ve noticed the neighborhood has begun to experience negative changes. If a homeowner notices their neighborhood beginning to go downhill, this may cause them to sell their home soon after buying.
What are the Consequences of Selling a House Right After Buying It?
When a person wants to sell a house with a mortgage shortly after buying, it’s still possible to make a profit. However, if the value of the home has increased, a homeowner may still suffer a loss. Before listing the home, a homeowner should be aware of the consequences in other areas.
Capital Gain Taxes
If someone sells their home after only one or two years of owning it, they’ll pay a long-term capital gains tax, which can reach as high as twenty percent on the proceeds. If someone sells their home even earlier than two years, there’s the potential for a higher tax burden. The homeowner won’t gain any benefit from a long-term capital gains tax and will be required to pay tax based on the income tax rates.
Income tax rates could be as high as thirty-seven percent, depending on the tax bracket the homeowner falls in. An exception to a capital gains tax is if a homeowner needs to move due to a natural disaster.
Mortgage Prepayment Penalty
When selecting a mortgage lender, some lenders add clauses for prepayment penalties if a homeowner sells their home before a specific time has passed. Sometimes lenders make these clauses because it will cause them to miss out on interest payments when a homeowner sells too early. When a homeowner wants to sell a house with a mortgage, they should review the mortgage agreement to verify if they’ll need to pay a prepayment penalty.
Less Time to Increase Home Value
In the real estate world, the longer someone stays in their home, the more money they’ll make when they sell it. On an annual basis, home values are increasing from four to eight percent. If the homeowner isn’t rushing to sell, they can hold off on selling their home for a few years to maximize their profits.
Closing & Moving Costs
When selling a home shortly after buying, the homeowner will, yet again, need to pay for closing and moving costs. Closing costs typically range from two to five percent of the sale price. In addition to closing costs, the homeowner might need to pay for moving expenses, which can cost thousands depending on how far the move is.
Lower Sales Price
We know that previous sale prices are public records and listed on home-selling websites. If someone is selling their home soon after purchasing it, they might receive a low offer from potential buyers who think something is wrong with the house.
Home Improvement Costs
Before a home is put on the market, it’s likely the homeowner may need to do some home improvement projects to make attractive offers. If a homeowner has only lived in the home for a short period of time, the only thing the house might need is a good deep cleaning.
Before listing, the homeowner could spend money on interior and exterior improvements to make significant upgrades, such as upgrading the painting and landscaping. In addition, the homeowner might want to set aside costs for a staging company to make the home more appealing to potential buyers.
Listing Costs
When a home is sold, real estate commissions are between five and six percent of the sales price. Listing costs are typically split between the buyers and the seller’s agent.
Can You Sell a Damaged House?
Yes, if a homeowner can find a buyer for their home, they can sell a damaged house shortly after purchasing it. For example, to sell a fire-damaged house, this means the buyer will need to take on the risks of the home. Some potential buyers won’t consider a home that has experienced flood damage due to water damage in the future.
Other potential buyers tend to stay away from homes in fire-prone locations because they don’t want to deal with smoke damage. If a person’s home is in need of serious repairs after a fire, they can still sell a fire-damaged house.
However, the more work a home needs, the lower the homeowner will need to list it for. The correct path to sell a fire-damaged house comes down to what the seller wants and needs and when they want to sell their home.
How Soon Can You Sell A House After Buying It?: FAQs
1. What happens if I buy a house and then sell it?
If you buy a house and then sell it, you can lose out on money, miss opportunities, deal with capital gains tax, and pay prepayment penalties.
2. How long do you need to stay in a house before selling it?
The guideline put in place by real estate agents is that a homeowner should stay in their home for at least five years. Five years is typically the amount of time it takes to make up for closing costs and mortgage interest.