This is quite a loaded question that can receive a lot of different answers depending on who you're talking to. The average time that's being quoted as a generality is five years, but there can be a lot of different determining factors that will lead you to the ultimate decision to start looking for an upgrade.
You'll want to make sure that the price gains will be able to make up for the purchase costs of buying a new home and selling your existing one. You are going to be incurring certain expenses as a buyer,which will include moving costs, legal costs, a title search, mortgage application fees, home inspection expenses and legal fees.
As the seller you'll need to factor in the costs of the brokerage commission and the additional legal fees. In some cases the cost to sell your home and then buy a new one can add up to as much as 8% to 10% of the value of your home. If you are counting on your house equity only to send you to the next level where you can purchase an upgrade, you'll need to be prepared to stay settled in your home for at least five years on average before you'll be able to afford to move on.
Other Things Can Come Into Play Here
A lot of people receive money unexpectedly during the course of their life in the form of inheritance money, gifts, lottery winnings, insurance settlements and various other forms of cash inflow. These types of large sums can propel a homeowner forward to the point where he can afford to upgrade a lot earlier. Of course, an individual's income level needs to be taken into account as well to make sure that the new mortgage payments can be met on a monthly basis.
A lot of your decision-making process is not going to be based only on statistics and averages. Life is going to come into play here and you'll need to be ready to be flexible. If you are a young couple and suddenly find out that twins are on the way, you'll definitely have a different viewpoint than you did a year earlier. New job promotions can happen in the blink of an eye where you are suddenly transported to a new town and when this change occurs you may also consider what type of new mortgage you will be able to carry in your new city of residence.
Why Is A 5-Year Period Recommended For Remaining In A Home Before Moving
The primary reason for the 5-year recommended staying period is to avoid having to take a financial hit from another sell-buy transaction. Although they can be negotiable, closing costs are always part of the deal and if you negotiate out of paying for them on one end, you're still going to have to pay them on the other. Plus, most mortgages are structured so that the first few years of payments contribute far more to interest than the principal balance on the loan. This is because the payment amounts typically remain fixed while the total interest you owe on your loan goes down as you owe less money. In short, you want to make sure that the proceeds from the sale of your home are enough to pay the entire balance of the mortgage while still leaving you enough put down on the next property and cover all the costs associated with selling and then buying. Five years is typically the amount of time necessary for the numbers to come out in your favor.
The point is that you need to stay flexible with your plans and roll with any changes that may come your way. While goal setting and long-term planning is important, you also need to understand that plans may have to be changed, hopefully in a positive way, when unexpected things turn up.