Instead of liquidating the securities in your portfolio for a down payment, consider using a margin loan. By borrowing against an existing portfolio, you can get around the tax liability involved in selling off your assets. (For all of this to work, you will have to have money in your portfolio first.)
Here’s an example of when this strategy might be useful:
You want to put in an offer to purchase a new house. You know you can sell your current house, but you don’t want to make selling your home a contingency of your offer on the new house, making your offer less appealing. However, you do need the proceeds from the sale of the current house for the down payment on the new house. Follow?
Here’s where the margin loan can help: You can take out a margin loan secured against your retirement portfolio for the down payment/closing costs on the new house. Once you close on your new house, you can sell the old house and then use the proceeds from the sale of the old house to repay the margin loan. What you end up paying in interest on the loan will probably be much lower than what you would have paid in taxes for selling off your assets. Of course, you will need to consult with your financial/tax advisor to make sure this strategy would be in your best interests based on your specific financial portfolio/scenario.
Now, I know you’re all like, “What about my debt to income ratio, Whitney? Won’t this new loan push me over the limit?” Don’t sweat it: Borrowed funds secured by an asset (secured loan payment) owned by the borrower generally do NOT require a monthly payment to be included in the DTI.
If you are interested in purchasing or refinancing in one of the following states, please contact me and I will be happy to connect you with a licensed loan officer in your state: Maryland, Delaware, Connecticut, Florida, Georgia, Maine, Massachusetts, New Hampshire, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Washington D.C., or West Virginia.