Buying House Question

[rdy4er]

Looking for some advise,
I'm buying a house before selling my current one. What are the opinions of taking the money from my taxable account to buy the house (would almost empty it) and then return it after selling current home or pulling a mortgage and pay it off when current house sells.
Thanks for any help

 

[user5027]

How are the funds invested?

 

[pb4uski]

I would be wary of draining taxable account and not having any emergency funds. What would you do if you had an emergency?

OTOH, it doesn't make a lot of sense to take out a mortgage on the new house if you intend to pay it off right away because of the costs of getting a mortgage.

If you plan to pay it off right away when the old house sells, perhaps you would be better off to take as large a HELOC as you can on the old house and use the proceeds along with some taxable funds to buy the new house. Then when the old house closes the HELOC would be paid off and the additional proceeds from closing on the old house can be used to replenish the taxable account.

 

[rdy4er]

Thanks for the replies
The taxable account is made up of Vanguard total stock and total Intl stock funds
I do have a separate emergency fund.
I didn't even think about the HELOC, I'll have to investigate that option.

 

[user5027]

You may owe taxes on any gains when you sell.

 

[rdy4er]

You may owe taxes on any gains when you sell.

That is true, although most of the funds have been in there more than a year

 

[pb4uski]

If so and if you're in the 15% bracket or lower then no tax on any LTCG, otherwise 15% tax.

 

[rdy4er]

If so and if you're in the 15% bracket or lower then no tax on any LTCG, otherwise 15% tax.

Yea, I'm not in the 15% bracket so I'd be looking at around 7500 in taxes

 

[Ready]

I would expect the fees on either a mortgage or HELOC to be less than $7,500, so I would pursue either of those avenues before selling all your equities. If the market jumps in value while you are out, how are you going to feel about buying back in at higher prices after you sell your home?

 

[panacea]

Yea, I'm not in the 15% bracket so I'd be looking at around 7500 in taxes

If you are in the 15% bracket your long-term cap gain tax bill is zero for fed (not $7,500), although you may have to pay some state taxes.

 

[W2R]

Yea, I'm not in the 15% bracket so I'd be looking at around 7500 in taxes

Try running TurboTax (or whatever tax software you usually use), to see what sort of tax increase you might be looking at. Other concerns might be higher Medicare or ACA costs due to higher income, or even AMT.

That said, I may be doing the same thing sometime in the next two or three years. I suspect that in some circumstances, a cash buyer has an advantage in negotiations.

 

[heeyy_joe]

Do you have cash value life insurance to borrow against?

 

[rdy4er]

I would expect the fees on either a mortgage or HELOC to be less than $7,500, so I would pursue either of those avenues before selling all your equities. If the market jumps in value while you are out, how are you going to feel about buying back in at higher prices after you sell your home?

This is what I'm thinking too, maybe going with a short term ARM since I will pay it off as soon as my current home sells.

 

[stephaniee36]

I am planning to do something similar, buying new house, using funds from a HELOC for the down payment.

 

[38Chevy454]

I did the HELOC to buy a second house, but kept my old one as rental for 3 years since the market was crap in old house location. Once it recovered and the house sold, the HELOC and small remaining mortgage was paid off and the balance was a nice check made out to me.

In your case that nice check could pay off the mortgage on the house or replenish the after-tax account. It really comes down to what is lower overall cost option. The cost of new mortgage and some interest for few months, or the cost of taxes on a withdrawal. My guess is you can get a lower cost mortgage than $7500 in fees.

 

[Another Reader]

If you qualify for a mortgage on a new home while still owning your current home, you should be able to get a "no cost" mortgage with a slightly higher interest rate. If you intend to pay off the next house with the proceeds from the sale of your current house, it won't cost you a lot. The trick is to cobble together the down payment in a way that won't disqualify you from getting the mortgage.

 

[LongPrime]

Did you see the 43% of Q1 homes was purchased with cash?

You may want to think about a margin loan from your brokerage, a passbook savings loan, and HELOC. You would want to be aware that loans are counted on credit score and as such the final mortgage interest rate could be higher than originally proposed at pre qualification.

A home that is purchased while you have an existing home will cost more in interest since you can only have one primary residence.

A cash purchase can close very quickly, 10 days or less vs a conventional FannyMae loan could take months.