Whether due to a job opportunity, buyer’s remorse, or a health emergency, some homeowners find it necessary to sell their home soon after buying it. If you’re in this situation, you’re probably wondering, how soon can I sell my house after purchase? In addition to answering that question, we’ll help you understand the consequences and decide if it’s the right decision for you.
Can I Buy And Sell a House In The Same Year?
While selling a home within a year of purchase isn’t ideal, you can technically sell your home any time after closing. However, this can result in some unwelcome financial repercussions.
Consequences to Selling a Home Early
Selling a house after 2 years can lead to negative buyer perception, mortgage prepayment penalties, buying and selling expenses, loss of equity, and tax implications. Understanding these variables can help you decide if it’s the right time to sell your home – and if you can’t wait, how to plan for any financial impact.
Negative Buyer Perception
Since websites like Zillow and Trulia provide information about when the home was last purchased, buyers might see your short time frame as a red flag. They may wonder if the home has major problems or the location isn’t safe. You can help dispel these misconceptions by making it clear in the listing. For example, “seller must relocate.”
Mortgage Prepayment Penalties
Although it’s not common, some lenders apply a financial penalty if you sell your home shortly after purchase. Depending on the terms of your loan, you might pay a percentage of your remaining loan balance (usually 2 to 5%), a percentage of owed interest, or a flat rate. Be sure to check with your mortgage lender before you put your house on the market, so you’re not surprised by this penalty.
Buying and Selling Expenses
If you recently bought your home, you probably shelled out 2 to 5% of the purchase price for closing costs, unless you negotiated for the sellers to pay them. You may have also depleted your savings to make a down payment. Unfortunately, you’ll need to do this again when you sell. Not only that, but closing costs for sellers are also higher – usually 8 to 10% of the home’s cost.
Loss of Equity
Home equity is how much of the home you own outright. The more principal of the mortgage you pay, the more equity you have. However, at the beginning of your loan term, most of your monthly payment goes toward interest, rather than principal. So, if you’re selling a house after 2 years, you may not have built a lot of equity, which makes it difficult to turn a profit. But that’s not always the case. Homeowners who made a large down payment, completed home improvements, bought a foreclosure, and/or paid extra toward the mortgage principal may have built significant equity in a short time.
Tax Implications
Is there a tax penalty for selling a house before 2 years? It depends on whether you make a profit from the sale of your home. If you do, you’ll be liable for capital gains taxes if you’ve lived there two years or less. It’s worth talking to a tax professional to get a sense of the impact if you’re close to the two year mark.
Exceptions To The 2 out of 5 Year Rule
Let’s talk a little more about the capital gains tax. If you’ve owned and lived in a house for at least two years (and it’s your primary residence), single taxpayers aren’t taxed on home sale profits unless it’s above $250,000. Married taxpayers aren’t taxed unless it’s above $500,000. The 2 out of 5 year rule states that you must have lived in the house for a minimum of two out of the last five years preceding the date of the sale.
If you don’t meet this requirement, there are some exceptions to the 2 out of 5 year rule. Special circ*mstances may include:
- Change in your employment location
- Health problems
- Death in the family
- Losing a job
- Natural disaster
- Multiple births
If you qualify, you’ll get a partial exclusion based on the percentage of the two years that you lived in the home.
Signs That It’s Time to Sell Your House
Although there are downsides to selling your house soon after purchasing it, there are also some clear signals that it’s the right decision for you and your family. Here are a few signs that tell you when to sell a house.
- You have significant equity in the home – If you put a sizable amount down on the house, made strategic home improvements, got a foreclosure or short sale deal, or the property’s appreciation went up sharply, you may have enough to turn a profit.
- You have cash for down payment and closing costs – If you can pay for these expenses with cash, you’ll be better able to weather a shortfall or breakeven when you sell the house.
- The market is good for sellers – If you’ve engaged a real estate agent and their research reveals there are buyers willing and able to buy your home, you can sell it quickly.
How soon can you sell a house after buying it? Immediately. But unless you’re a professional house flipper, it comes with some financial challenges. Before you make a decision, find out the fair market value of your home, then subtract your outstanding mortgage balance, estimated seller’s closing costs, and any tax implications. This will give you a good idea of where you stand.
