Why you should keep your home for at least five years

You’ve spent months searching for the ideal house, in a neighbourhood you like, at a price you can afford. Having finally found it and made the house your home, your circumstances change and you realise you have to sell.

Aside from the heartache involved, there are financial implications to rapidly relisting a home. We have a look at these, and we offer some tips on choosing wisely to avoid this situation.

Tip: Your credit score plays a large role in your home loan approval – see your credit report today.

How soon is too soon to sell?

According to Andrea Tucker, director of MortgageMe, there are many factors that can precipitate an unanticipated move. These can include starting a new job, growing your family, filing for divorce, or another major life event.

However, she urges that selling too quickly after buying a home can be costly, and you could end up losing money instead of making a profit.

“The general rule of thumb is that you should stay in a home for at least five years before selling. This will ensure your home has gained enough value to cover your transaction costs at the least,” says Tucker.

If you’re used to short-term leases, five years may seem like a long time. However, considering you are likely to own only a few homes, this is an incredibly short period.

If you hope to go the distance, there are two essential elements that you need to secure - a reasonably-priced home loan, and a home you’re happy in – even if it’s temporary.

How to choose a home loan

Tucker says that it's worth the effort to shop around for the best deal, perhaps with the assistance of a mortgage originator. Some banks may offer better interest rates, and others a higher chance of home loan approval, depending on their processes and lending criteria.

“As important as service is, the most important factor you should consider is the rate. If it’s reasonable, this will provide a material benefit to you on a monthly basis,” says Tucker.

She explains that the rate offered to home buyers depends on the banks’ lending criteria, and the financial situation of the applicant.

Your credit score is also a key determinant in whether an offer is made, and the interest rate attached. You can sign up with a credit platform, such as CreditSav, to access your credit report.

Tucker believes that you can only be certain you’re getting the best deal if you apply with more than one bank and compare the offers. Consider the deposit and the interest rate, and calculate the difference in monthly costs, as well as the full duration of the bond.

How to select the right property

When hunting for a property, Tucker recommends that you start with a list of required features, and the suburbs you’re willing to live in.  

“The property portals are a great place to dip your toes in the market. On these sites, you can search through your preferred neighbourhoods – as well as just outside them, in order to compare value for money against your list of non-negotiable criteria and features,” says Tucker.

You should note where you’re willing to compromise, and what is non-negotiable for you. This way, Tuckers says, you won’t be swayed off course when you look at all the options available to you.

“Once you know what's out there, and what range you need to look at to get all the features on your list, it’s time to do an affordability check,” says Tucker.

She explains that this will allow you to get a good idea of how much additional credit you can manage responsibly. When you return to the property portals with this knowledge to hand, you’ll soon know whether any sacrifices need to be made, such as considering a more affordable neighbourhood.  

“An important tip is to ensure that you stay ahead of the competition, and build relationships with estate agents who are active in the suburbs you’re interested in. Sometimes properties don’t make it to the portals, and you want to ensure you’re seeing these hot properties first,” says Tucker.

If possible, try to reduce your debt before attempting a home loan. Click here for more information.