Selling a house right after buying it might seem odd, but it’s something many homeowners find themselves needing to do. There can be many reasons why you might want to sell a new home you just moved into, but is it legal? How soon after buying a house can you sell it? How soon should you sell it?
Read on to learn more about the amount of time you should wait before selling a home.
How Soon Can You Sell a House After Buying It
Legally speaking, there is no limit on how soon after a home purchase a new homebuyer can sell their home. As soon as you pay for the home, the house is yours, and you can do with it what you want. If you have buyer’s remorse and no longer want to stay in the house, nothing is stopping you from selling it and moving out.
Nevertheless, just because you can, that doesn’t mean you should. Generally, it’s best to wait a bit until you break even before selling your house. Many people abide by the five-year rule, as that’s when you can usually expect to reach the break-even point, but the main idea is that you will lose money if you sell your house right away.
The five-year rule relies on your home increasing in price at around 2% per year and the closing costs of selling your home being approximately 10% of the price. Closing costs include:
- Real estate agent commissions
- Realtor fees
- Moving expenses
- Listing fees
- Various other selling costs
It will therefore take five years before you reach the break-even point and recuperate all closing costs.
However, that is not always the case. If the housing market is booming, the value of your home will increase a lot quicker. Furthermore, if you make renovations, that can also increase your property’s value. In a seller’s market, where more potential buyers are vying for your home, you can recuperate seller closing costs much faster.
Furthermore, if you sell your house to cash home buyers in Texas, you can avoid many fees, including the real estate commission you would normally pay to an agent. Since realtor fees could easily run up to eight percent, that shaves a few years off the five-year rule.
Still, there are other things to consider, such as property taxes. The IRS requires you to pay capital gains taxes on homes you purchase and sell at a profit. There are two categories of capital gains taxes. The first is the short-term capital gains tax, which you must pay if you owned the property for less than one year.
However, if you have owned the property for more than one year, you qualify for the cheaper, long-term capital gains tax. Both short-term and long-term capital gains taxes depend on your tax bracket, but short-term taxes are considerably higher.
Therefore, selling a house after 1 year is preferable. Nevertheless, it’s even better to wait two years, as you can qualify for a capital gains tax exemption.
The IRS exemption applies if you owned and used the home as your primary residence for two out of the last five years. You can own it for two years and then use it as your primary residence for a separate two years. However, you just meet both the ownership test and the primary residence test for at least two years out of the past five.
The total cost of selling a house before two years have passed will be a lot higher due to taxes. A tax professional can help you figure out how much you will have to pay, but it will likely be considerable.
Finally, selling a house before 90 days will deter many buyers, as such properties are not eligible for FHA-insured mortgages, according to the FHA.
Home Equity and How Negative Equity Works
One issue you may experience when selling a house immediately after buying it is negative equity. First, though, you need to understand what home equity is.
Home equity is the difference between the value of your home and the amount you owe on the mortgage and other debts you secured with your home. For example, if you owe $200,000 on your mortgage, but your home is worth $300,000, you have a positive equity of $100,000.
The amount of equity you have depends on the size of your down payment, the value of your home, and the total value you still have to pay on your mortgage.
Negative home equity is when you owe more than the value of your home. For example, you have negative equity if you owe $300,000 on your mortgage payments, but your home is only worth $250,000.
Negative equity can happen if home prices in the area suddenly go down quickly. Increasing crime rates or the announcement of a new factory or development in the area could lead to that.
Selling a home with negative equity is not impossible, but it’s definitely more challenging. Not many people want to buy a liability. You could, of course, pay off your mortgage, but a mortgage prepayment penalty may apply, as the lender will lose out on interest payments.
In such cases, your best option is usually to wait as you continue to pay off your mortgage payments and eliminate your negative equity. As you wait, home prices may increase as well. Once you have positive equity, selling your house will be a lot easier.
Should You Sell Your House Soon After Buying It?
As a general rule, selling a house right after buying it is not a great idea. There are times, however, when you should sell your home early.
One common reason people sell homes after a short period is due to a job relocation. Perhaps you just got a job offer in another city that will pay you well. In that case, selling your house can be a good idea, as the salary you will get will make up for the difference between the original purchase price and your new home sale listing price.
There are other reasons you might want to sell a house quickly. If home prices in the area go up very fast, selling your house can net you a nice profit, which you can use to purchase a new home in another area. It still may not be wise to sell your home if prices will continue to increase, but at least you will recuperate your losses.
There are times when you might have no choice but to make a quick sale. If you have a health emergency, for example, and you need the cash, selling your home can help you cover medical bills. There may be other life changes forcing you to sell your home, such as a parent falling ill in another city, in which case you might decide to move closer to take care of them.
Perhaps you bought a large house for you and your newborn baby, but there was an unfortunate incident, such as a car accident, and your child and spouse are no longer with you. You may also have lost your job and can no longer pay the mortgage payments to your lender, and you are facing foreclosure if you don’t sell.
Can You Sell Your House Straight After Buying It?
You can, but you probably shouldn’t unless you have no choice or expect property prices in the area to decrease drastically. It’s best to wait at least two years so you can qualify for the capital gains tax exemption. Even though you might not break even at that point, you will still save a lot of money on taxes.
If you do have to sell a house fast in Fort Worth soon after buying it, decide on a plan. If you sell through a real estate agent, you will have to pay agent commissions, even if you paid a buyer agent commission when you bought the home.
Selling to a cash buyer instead would be ideal, as it allows you to save on closing costs.
Furthermore, selling to a cash buyer makes sense when your home has negative equity and you can’t afford to pay off the loan. In such cases, most buyers won’t touch your home with a 10-foot pole, but cash home buyers can offer you a good deal.
Similarly, if a natural disaster, such as a flood or fire, damages your home, and you don’t have insurance to help you repair the damage, you can sell it as-is to a cash home buyer.
We buy houses Arlington homeowners need to sell quickly. Whether your home has damage, is facing foreclosure, or you just need to get a home you just purchased off your hands, we can help.
Regardless of your home’s condition, fill out the form on our site for a quote. Send us pictures of your home or schedule a walkthrough so we can give you our fair cash offer. Then, choose a closing date, and we’ll close on your schedule!