Home Down Payment

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Topic Author
JR2007
Posts: 9
Joined: Tue May 16, 2017 8:03 pm

Home Down Payment

Post by JR2007 »

My wife (31) and I (37) are expecting our second child this summer and are looking for a larger home closer to better schools. We've decided on homes in the $450-500k ball park. Our current home is worth about $275k with an outstanding mortgage of $107k @ 2.6% for another 13 years. Our plan is hang on to this home as a rental which should bring in about 1.5x what we currently pay for mortgage, insurance, and taxes.

Overview:
Combined gross income $215k
Yearly investments: max his 401k, her 457, her 403b (Roth), his and her Roth IRAs, and family HSA
Cash: $25k
Taxable brokerage account: $290k
Retirement accounts: $600k


My question is about the best option for coming up with a 20% down payment on the new home and I'm currently debating the following options (certainly open to others that are out there):

1. Sell ~$100k from the brokerage account. I loss harvested on this account in 2020 and it has about doubled since then, so the sell would yield a capital gain of ~$50k. I'd be on the hook for a tax bill of 15% ($7500), but suppose I could switch my wife's 403b contribution to traditional for the year to reduce our taxable income. Side question: if going this route, does this sell add to our gross income to push us over the limit to directly contribute to our Roth IRAs?

2. Home equity loan or HELOC. I only understand the basics of how these work. They seem like an enticing way to come up with the money, but am I missing something?

Thanks in advance for the advice!
Rudusjdkxh
Posts: 3
Joined: Wed Dec 29, 2021 9:40 pm

Re: Home Down Payment

Post by Rudusjdkxh »

Can you get a loan from your brokerage with your stocks as collateral?
NabSh
Posts: 377
Joined: Fri Dec 25, 2020 11:09 am
Location: USA

Re: Home Down Payment

Post by NabSh »

You can also refinance your current home. Pull cash out. And then buy you new home.
Interest on rental property will be tax deductible.
Topic Author
JR2007
Posts: 9
Joined: Tue May 16, 2017 8:03 pm

Re: Home Down Payment

Post by JR2007 »

My brokerage account is with Vanguard. I didn’t realize there would be an option to get a loan, but definitely something I can look into.

I did leave off the option of a cash out refi, but maybe I should explore this route further especially considering interest would be tax deductible. My initial thought was that a refi would likely cost me a few thousand dollars and rates have gone up.

Is it correct to assume interest paid on a HELOC would also be tax deductible?
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