You could turn around and sell your home the day after you buy it — nobody is making you stay. But selling your home soon after buying can mean losing money, missing opportunities, facing capital gains taxes or paying mortgage prepayment penalties.
The typical seller lives in their home for 15 years before putting it up for sale, according to the Zillow Group Consumer Housing Trends Report. A home is most people's largest financial investment, so homeowners tend to stay long enough to gain significant equity. But life can change unexpectedly, and you may need to move sooner than you had planned.
Reasons homeowners sell sooner than expected
Unless you're a professional home flipper, you probably weren't planning on selling soon after purchase. But there are plenty of reasons people end up selling within a year or two of purchasing:
Job relocation: You may need to move for a career opportunity or to shorten your commute.
Health emergency: You may need to free up equity to pay medical bills or living expenses.
Buyer's remorse: You might discover that the house you bought isn't the right fit.
Family changes: A new family member, kids leaving for college or a death in the family can cause people to sell and find a better home for their needs.
Financial toll: Your mortgage payment might be too expensive, or your property taxes increased too much.
Hot sellers market: You may have gained equity quickly, and you want to take advantage of the opportunity to turn a profit while you can.
How soon can you sell a house after buying without losing money?
Technically, you're free to sell anytime after closing day. But is it a smart financial move?
On average, selling in less than a year eliminates the financial benefit of homeownership. It’s not just about selling the house for what you paid for it. You’ll also need to factor in the costs associated with buying, the costs associated with selling, the equity gained or lost, and moving expenses.
If the costs of selling are new for you, check out the Home Sale Calculator to explore the typical itemized costs.
The breakeven horizon
The breakeven horizon is the amount of time it would take for buying to make more financial sense than renting, factoring in all the expenses that come with purchasing a home.
You might think that staying put for a short time means renting makes the most sense. But two years and three months is the average amount of time you’d need to own the nation’s median-valued home to accrue enough equity and/or pay down the balance on your mortgage enough to make it financially more cost-effective than renting a typical apartment.
The breakeven horizon assumes a 20% down payment and monthly payments on a 30-year fixed-rate mortgage at the current interest rate for people with credit ratings between 680 and 740. The tool takes into consideration current and expected market appreciation rates to help determine earned equity. It also calculates taxes, insurance, closing costs, maintenance and even HOA fees for condos, plus 8% selling costs to realize the profit on selling.
You can use this breakeven horizon as a good indicator of how soon you can sell a home after buying it without losing money in the investment, noting that the horizon varies based on where you live.
For example, as of April 2019, the breakeven horizon for the typical home in the city of Seattle is four years, four months — much longer than the national average. In Philadelphia, buying becomes the financially smarter choice much more quickly — after just one year and 10 months.
When does it benefit you to sell fast?
Sometimes it's possible to turn a profit even if you sell earlier than your area’s breakeven horizon. Here are a few common instances:
- You flipped the house, making significant renovations in a short period of time to increase the home's resale value.
- Home values in your neighborhood shot up unexpectedly, due to new development in your area or a big company moving in nearby.
- You got a good deal initially. If you originally bought your home as a foreclosure or a short sale and can sell it under normal circ*mstances, you might turn a profit.
Calculate how soon you can sell a house after buying it
While you can sell anytime, it’s usually smart to wait at least two years before selling. This gives you time to (hopefully) gain some equity to offset your closing expenses. And by living in your home for at least two years, you can exclude up to $250,000 (or $500,000 if you’re married) of the profits made on your sale from your taxes — more on that later.
Of course, there are times where you simply can’t wait two years to sell. If you’re in this position, do the math first so you can anticipate any potential loss you’ll take. Knowing your financial outcome ahead of time can lower stress and help you make practical decisions.
Get the fair market value
First, figure out how much you’ll be able to sell for so you’ll know how much you stand to gain or lose. If you’re selling on your own, consider hiring an appraiser to provide the market value of your home. If you’re working with a real estate agent, they should help you identify the fair market value of your home and suggest a listing price, using neighborhood comps and market analysis.
Subtract closing costs from projected sale price
Closing costs can eat a lot of your profits, especially when you're buying and reselling in a short period of time. Make sure you factor closing costs into the equation.
Buyer closing costs
Buyer closing costs usually total 2% to 5% of the purchase price of your home. You can find the total amount you paid to purchase your home by looking at your settlement statement. Note that it’s common for buyers to ask for sellers to cover closing costs as part of the negotiations, so it’s possible you didn’t pay much when you purchased your home.
Seller closing costs
Closing costs for sellers can total 8% to 10% of the sale price. The bulk of this cost goes to commissions. The seller typically pays both their agent's commission and at least a portion of the buyer’s agent’s commission, which together total 5% to 6% of the sale price. On a $200,000 home, that means your closing costs can range from $16,000 to $20,000.
The most common charges include:
- Agent commissions
- Title insurance
- Escrow fees
- Transfer and/or excise tax
- Prorated property taxes
- Prorated HOA fees
- Attorney's fees
Subtract seller prep costs from projected sale price
Even if you've lived in the house for a short time, you may still need to do some prep work before listing. According to Zillow research, sellers who hire professionals to help them get ready to sell their home spend an average of $6,570. This includes tasks like painting, staging, house and carpet cleaning, lawn care and gardening, and local moving costs.
Subtract mortgage payoff amount from projected sale price
If you've owned your home for less than a year or two, your payoff amount won't be significantly lower than the amount you originally financed. At the beginning of a loan, most of each monthly payment goes to interest, not principal, so you won't have made enough payments to make much of a dent in your loan principal.
Unless you’ve been making significant additional principal payments every month, it's unlikely that your mortgage payments alone will cover the selling costs and allow you to break even. If you're looking to make a profit, you'll have to count on the amount your property has increased in value during your time owning it.
Other consequences of selling a home early
In addition to hefty prep and closing costs, consider some additional consequences of selling soon after buying.
Capital gains taxes
If you've lived in your home for at least two years and it's your primary residence, you are exempt from paying capital gains taxes on the profits of your sale — up to $250,000 for an individual or $500,000 as a couple.
But if you’re selling your primary residence before you have lived there for two years — or at least two of the last five years — you may be subject to capital gains taxes (of course, capital gains taxes only apply if you turn a profit).
Capital gains tax rates vary based on how long you’ve owned the home and your income tax bracket. It’s worth noting that if you’ve lived in your house for less than two years, there are some cases where you may be exempt from paying capital gains taxes — like if you move because of a natural disaster, death or unemployment. Anytime you have capital gains tax-related questions, be sure to consult your tax professional.
Mortgage prepayment penalty
Some lenders charge a prepayment penalty if you sell your home within a certain time period after buying. It's a way for lenders to recoup some of the interest payments they won't be getting since you're paying your loan off so soon. The amount you'll have to pay depends on the terms of your loan. It could be a percentage of your remaining loan balance (usually between 2% to 5%), a percentage of owed interest or a flat rate.
Most loans today don’t have prepayment penalties, and there are never prepayment penalties on FHA loans.
Negative buyer perception
Since listing history is readily available on sites like Zillow and Trulia and on local MLS systems, buyers and their agents can see when you purchased and what you paid. If you're selling less than a year after buying, buyers might wonder if there's something wrong with the home or its location.
This negative perception could lead to lower or fewer offers, unless you make it clear in the listing why you're selling (e.g., 'seller must relocate').
Can you sell a house within 6 months of buying it?
As mentioned above, you can sell your home whenever you want, but you're likely to lose money if you sell within the first six months of owning. Here's an example, using figures from Zillow's mortgage calculator tool and amortization calculator.
How to calculate your net proceeds after 6 months of homeownership
- Home was purchased for $200,000 in October 2018.
- Home was owned for six months.
- Home was purchased with 20% down ($40,000).
- Closing costs for buying were 3% of purchase price ($6,000).
- Financed $160,000 at a 4.5% interest rate, 30-year fixed loan, for a monthly payment of $811.
- Equity of $1,276 gained in first six months from paying mortgage principal.
- Closing costs upon selling home were around $20,000.
- Total loss is $26,000 (buying and selling closing costs combined), combined with $1,276 in equity gained, for a net loss of $24,724.
That means you'd have to sell your home for at least $224,724 to break even, and you still wouldn't recoup the amount spent in interest payments ($3,588 in three months), property taxes ($1,482 in six months) and insurance ($420 in six months). Note that we didn't include these in the calculation above, because some of these expenses would have been incurred if you had owned or rented elsewhere, instead of buying when you did.
