I received an inheritance that I invested into a standard brokerage account. It’s now sitting at ~$250k (up$90k). My partner and I are are beginning to look into purchasing a house (goal is around 300-450k), however we do not have enough saved for the down payment without dipping into our emergency fund. Our annual income is ~$180k.
Would it be a bad idea to sell some of the stocks to help pay for the down payment? Should we just wait to save up enough without selling anything? Also, should we aim for 10% or 20% down to avoid the PMI? We would not be dipping into our 401ks or Ira’s. We have the cash flow to afford a mortgage, it’s just the lack of cash for the down payment at this point.
Selling stocks for a down payment on a house
byu/Plz-DM-Me-Your-Nudes inpersonalfinance
Posted by Plz-DM-Me-Your-Nudes
10 Comments
I would, I did similar. I’d set the goal to avoid PMI. Just understand tax implications of selling stock too. let the rest ride!
if you sell the stocks then you may need to pay capital gains taxes. As an alternative, take a look at a portfolio backed loan, which can use the stock as collateral. The rates for these types of loans can be attractive.
I put basically 80% of my net worth into Palantir when it was ~$10. It obviously sky-rocketed and I could easily afford a down payment for a house, I just waited until the second it became long term capital gains then sold enough for DP, Closing Costs and 6 months of expenses.
I am too afraid to file taxes to find out how much I owe, so I keep putting it off, but I my only options seemed to be:
A. Sell before long term capital gains, and pay an insane tax rate
B. Sell after capital gains and pay least amount of taxes
C. Dont sell and take out a loan w/ my stock as collateral (my brother did this).
I considered, and was even advised to do C but given Palantir was so volatile, I felt that was incredibly risky, so I went w/ B. I would only do C if your investments are in super stable, non-speculative stocks.
Yes, you should put enough down to avoid PMI. I assume you inheritance was not in a parents IRA, so you should be fine. Just make sure you are not buying the house because of inheritance. It does matter, since purchasing a nice home with inheritance sounds great, but do you have the cashflow for taxes and maintenance to keep it.
I was in the same position and also went to reddit for advice lol. The general sentiment was that’s literally what the money you’ve been growing should be used for. Why else have you been putting away that money?
Personally, I only went for a 10% down payment, but it’s not for everyone. My mortgage was in the middle of your range and PMI was ~$48. I thought paying that was well worth the flexibility of having an additional 10% to put towards anything in case something went wrong. Mind you, it was a fairly new build so chances were unlikely it needed something big (e.g. new roof, water heater, etc.), but having that peace of mind was so worth it and I’d gladly pay it again.
Obviously, I put any extra money I had until I hit the 20% and was able to remove the PMI about 14-15 months later. All said and done, I guess the total loss was ~$720 (not exactly since obviously my 10% in stocks were also able to grow during that time).
Had my PMI been more or if the monthly payment would be too much otherwise, I might have opted to sell my remaining stocks for the 20%. Granted, if payments were that tight, I’d probably rent for another year or two unless it was my dream home. However, it was just about escaping the apartment life asap for me.
Honestly this does not sound reckless to me. Using part of a brokerage account for a down payment feels very different than touching retirement funds or an emergency fund. You are basically reallocating money toward another asset.
The 10 percent vs 20 percent question probably comes down to how comfortable you are with PMI versus keeping more invested. Some people really value the lower monthly payment, others prefer flexibility and liquidity.
If you had not inherited and invested that money, would you feel weird about saving cash for a down payment instead? Sometimes reframing it that way helps clarify what feels right.
Yes I think you should use it. It earned money that you put aside for something like this.
I’d either
Focus on saving as much as possible and stay invested for next 3-4 years and pay cash
Or
Save for down payment and not touch brokerage
At 180k pre tax u guys should be able to save 5-6k a month if you’re in a LCOL area that also has homes in that range..
Not sure why you can’t just take a year and save.
Partner? If you commingle funds with someone who isn’t your spouse you could lose part of your money. Get a written agreement with your partner.
Before you sell the stock, I think it’s possible to borrow against the value of the stock as an asset (similar to home equity) to avoid triggering immediate taxes.