How soon after buying a house can you sell it?

Pros and cons of selling a home quickly

Does one or more of the above reasons for selling apply to you? The next step is to consider the advantages and disadvantages of selling your home soon after buying it.

Pros

• Potential profit: A quick sale might be worthwhile if you can turn a profit. Factor in the costs of selling (such as real estate agent fees and closing costs) to determine whether you could walk away with cash in your pocket.

• Protect your finances: If you can’t afford your monthly mortgage payments (and don’t anticipate being able to anytime soon), it may be better to sell your house for a loss now than to accrue debt and penalties from months of missed mortgage payments. Missed payments can also damage your credit score.

Cons

• Possible prepayment penalty: While it’s not common, some mortgage lenders charge a prepayment penalty when you sell your house and pay off your loan quickly. You can review your loan documents or contact your lender to determine if there are any rules regarding early repayment.

• Capital gains tax: Homeowners who live in their property for two years before selling it can exclude $250,000 in capital gains (or $500,000 for married couples filing jointly) when filing their taxes. If you sell earlier and earn a profit, you’ll probably have to pay real estate capital gains tax on that profit.

• Limited equity: When you sell shortly after buying, you generally don’t have time to build home equity by paying down your mortgage or allowing your property to gain value over time. Your equity probably won’t be much higher than the down payment you made when you bought the house

• Potential financial loss: When you buy a house, it’s common to pay 2% to 5% of the purchase price in closing costs. Sellers generally pay 8% to 10% of the sales price in closing costs, depending on whether they pay the real estate agent’s commissions for both sides of the transaction. You’ll also have to cover the cost of moving.

• Lost down payment assistance: Some down payment and closing cost assistance programs require repayment if you don’t stay in the house for the minimum period, which could be three to 10 years.

The 5-year rule

There’s no exact rule about how long to live in your house before selling it, but real estate agents often recommend staying in your house for at least five years. That five-year period gives you time to pay down a chunk of your mortgage balance and for property values to hopefully rise enough so you can earn a profit from the sale of your home. Ideally, five years is long enough to regain the amount you spent on buying the house.

However, there is no guarantee that your local housing market will perform as expected during those five years. It’s possible that you could sell your home for a profit earlier or need to wait longer, depending on whether you’ve made valuable home improvements and on local market conditions.

The five-year rule is based on the idea that home values appreciate 3% to 5% annually, which accumulates over five years to 15% to 20% — ideally enough to cover your seller’s closing costs and generate a profit.

• Determine how much it costs to sell your house.

Rules for real estate investors flipping houses

Until now, we’ve mostly been referring to primary homeowners who want to move soon after buying. But what if you’re a real estate investor?

If you’re an investor who wants to flip a house — which refers to buying a property at a low price, fixing it up, and selling it quickly — you need to know the FHA flip rule. If you attempt to sell the house within 90 days of buying it, the Federal Housing Administration will not allow anyone to buy the house using an FHA loan. This limits your pool of potential buyers.

If you sell the house within 91 to 181 days, people using FHA loans can buy the property. However, depending on the circumstances, there may still be rules in place. For example, if the sales price is more than double the amount the investors originally paid, the buyer must obtain a second home appraisal, in addition to their FHA-approved appraisal.

• Discover 8 ways to start investing in real estate.

Alternatives to selling a house early

Depending on why you’re considering an early sale of your house, you may want to evaluate other options to avoid a financial loss.

• Rent out the property. You may be able to rent out the house for enough money to cover your mortgage and other expenses, depending on your local market conditions. This could be a solution if you’re relocating, facing financial hardship, or experiencing buyer’s remorse. Just be sure to calculate the costs of being a landlord and understand the tax and insurance implications.

• Remodel. If buyer’s remorse due to problems with the house is your main issue, consider obtaining an estimate of what it would cost to remodel the house to better meet your needs.

• Refinance. If you’re struggling with your monthly payments, it may be an option to refinance your mortgage to get better terms — especially if mortgage rates have dropped or you can qualify for a lower rate.

How soon can you refinance a mortgage after buying a house?

How soon can you sell a home? FAQs

Is there a penalty for selling your home early?

There typically is no penalty for selling your home early. However, some mortgage lenders impose a prepayment penalty if you sell the house within the first few years. Also, you may need to repay any down payment assistance you received to buy the house if you sell too soon.

How do you know if it’s a good time to sell your home early?

It’s not easy to time the real estate market when buying and selling a home, but you can talk to a real estate agent about local market conditions. If there are many homes on the market and few buyers, you may find it difficult to sell your home for the price you want. But if there are plenty of buyers and few homes, you’ll probably have an easier time. Your personal circumstances will also drive the decision, particularly how much you owe on your mortgage and whether a sale can generate enough funds to pay off your loan.

How early is too early to sell a house after you buy it?

While there are no hard rules about how long you have to wait before selling a house, you might have to pay capital gains taxes. You also may not have enough time to recoup the costs you paid when you bought your house. Consider consulting with your mortgage lender, tax advisor, and a real estate agent to assess the potential consequences of selling your home within a few months or years after you purchase it.

Laura Grace Tarpley edited this article.