What’s the right length of time to stay in your current home for? This is a question based on many factors, as homeowners balance out investment potential with living in a home that they can afford, and that meets their needs.
Recent research suggests that US homeowners are staying in their properties for around 13 years before moving on and this figure has increased by 3 years since 2008.
Economists would tell you that homeowners are wising up to the financial benefits of moving less often. But what happens if you’re interested in selling a house after 3 years?
Follow this guide to learn:
- The pros and cons of selling a house shortly after buying
- How to maximize your profits if you’re forced into a sale
- Why selling after 3 years is different to after 5 years
- How to buy your next home with longevity in mind
Let’s get started with why you might be looking to sell your home soon after buying it.
Why are you selling your home after 3 years?
In the middle of the pandemic, the property market is being fuelled by people selling for three main reasons:
- Relationships breaking down
- Job losses making it hard to afford mortgage payments
- People reassessing their living situation
Covid-19 has created an unprecedented situation and even for those who have held onto work, their lifestyles may have been turned upside down.
For people who have switched to remote working, their current homes may not have a quiet, distraction-free space to be used as a home office.
Selling your home and moving somewhere else can provide more access to the home layout they need, without necessarily being within a stone’s throw of the office.
The pressures of being forced to stay home, and possibly even homeschooling your kids can also take a toll on your personal relationships.
If there were problems beforehand, then these may have been exaggerated further by lockdowns.
Divorce inquiries had already increased 34% by April 2020, just several weeks into the first lockdown, with new couples the most likely category to file for divorce at this point.
With many partners unable to buy out the other’s share of their home, selling up is the only option.
If you have lost your job or have had your earnings or contract reduced during the pandemic, then it can be hard to meet your monthly bills.
Although aid has been available throughout the crisis, many Americans have struggled, and selling their property quickly is a good way to liquidate the asset and move somewhere smaller.
This can both free up cash and reduce monthly payments.
So, assuming that you either need to or want to sell your home after just living there for 3 years, what are the disadvantages to this situation?
Ok, so if moving house was simple or affordable, then we’d all be doing it more regularly, wouldn’t we? Unfortunately buying and selling property is expensive and keeps many realtors, brokers, and removal firms doing great business.
Typically, you can expect to set aside 10-15% of your sale profits and put them towards transaction costs.
Your closing costs will usually equal between 2-6% of the value of your home, with your agents’ fees being around 6% of the sale price.
If you’re doing this every 3 years or so, then your property won’t have had the chance to experience substantial price growth, meaning that these costs will significantly eat into your profit.
The way mortgages are set up, means that during the first few years that you’re paying them off, you’re usually only paying off the interest and very little of the principle.
It’s not until after around 5 years, that you can expect to start paying off chunks of your debt.
By selling a house after 3 years, you’ll be faced with expensive closing costs, without having built up much equity in your home.
Some mortgage products also come with hefty early repayment penalties which you’ll need to take into account.
If you’re buying a new property alongside your sale, then you may be able to port your mortgage across with the same lender to save money.
To maximize the amount you could gain from a property sale, your home must be looking at its best to tempt buyers into making an offer.
If you need to make any important fixes, upgrades, or simple staging, then these will all eat into your profits further.
Remember that simple steps such as decluttering are completely free and can make a significant difference to the appearance of your home.
For any major alterations, take advice from your realtor about the modifications that could add real value and those which will waste your money.
On the bright side though, there are several scenarios in which selling a house shortly after buying can be positive for your finances.
Neighborhood prices have gone up
If your home is based in an area that has recently improved, perhaps due to new transport links, local regeneration, or has simply become more popular, then prices are bound to have shot up.
By cashing in, shortly after buying, this is a great way to ‘flip’ your property. Even with the cost of closing and other associated fees, if you’re coming out of this transaction with extra money in your pocket, then this is a great situation to be in.
Of course, as it won’t just be the value of your property that has risen, this scenario works best if your next property is out of the neighbourhood in a more affordable area.
Your earnings have risen
Some businesses such as PPE supplies have done very well during the pandemic.
So if your earnings haven’t taken a hit during the pandemic, and your wages or business has increased significantly, then you might be in a much stronger position than you were 3 years ago.
If that’s the case then you may want to live in a larger house that better meets your needs or one in a nicer area.
And your rise in earnings will prove popular with mortgage lenders who consider affordability based on your monthly income.
You’ve been overpaying your mortgage
Many people buy a home based on the top salary multiples that they’re offered by a lender.
If this is the case, then it gives you very little wiggle room in your monthly budget to pay off extra chunks as you go along.
But if you’ve purchased a property that is at the lower end of your borrowing bracket, then you may have been able to make larger payments on your mortgage over the past 3 years.
What this means when it comes to selling your home quickly, is that you’ll have been paying off more of the principle and be in a similar position to someone else who has been paying down their loan for many more years than you.
Considerations for your next property?
So, what next? If you’re selling your home quickly after a couple of years, then you may not be in a position to buy again at the moment.
Renting or moving in with family are options while you get back on your feet. But if you are ready to buy another property, what should you be doing to increase the likelihood of staying in your next house for longer?
Buy with growth in mind – it costs more to run a property that is too big for you. But if you hope to start a family in the next few years then it makes sense to think ahead and buy a house that accommodates your plans. This might also be true if you expect to have elderly relatives joining you or college grads returning home too.
Don’t max out your lending – if you know that money will be tight for the next few years, then it pays to play it safe and not borrow the maximum available to you.
Buy in a favorable location – are there any up-and-coming neighborhoods worth checking out for your next property purchase? An area that hasn’t quite reached its peak could be an excellent investment for your new home and if the neighborhood improves then you’ll be less likely to want to leave.
Wondering how to spot an up-and-coming neighborhood for your next home?
Look next to other hot areas that buyers are being priced out of.
An influx of artists and musicians is another sure sign along with a declining crime rate.
If new restaurants and bars are already springing up then you can bank that property prices are going to rise.
Are you ready to sell your home?
If you’re selling a house after 3 years, for whatever reason, then it’s important to surround yourself with the right team to maximize your profits.
Choose a mortgage broker who allows you to secure a great deal on your next property loan, and of course, an expert realtor who is motivated to sell, sell, sell your home.