Need cash for down payment - Bay Area

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Topic Author
checkcheck
Posts: 22
Joined: Fri Jan 14, 2022 6:33 pm

Need cash for down payment - Bay Area

Post by checkcheck »

Hi all,

Wanted to get the community's opinion on the situation below.

Need: $700k cash asap for down payment

Potential sources:
- 100k cash
- 1.5m investments
- 600k equity in current home

Other details:
- the plan is to sell the current home, but cash would be needed sooner than it would be available from selling existing home
- will be getting $450k pre tax bonus by October 2022

Given the above, what would be recommended order of operations for freeing cash?
- It seems that selling investments is the easiest but also the least tax efficient.
- Would a line of credit be a better option given above details?

Thanks!
tsm1th
Posts: 38
Joined: Thu Aug 22, 2013 1:48 am

Re: Need cash for down payment - Bay Area

Post by tsm1th »

You might want to look into a bridge loan. That'll allow you to sell less/none of your investments. My wife and I just did this last month (also in the Bay Area). We used First Republic Bank -- they created a "bridge" loan that was actually a cash-out second mortgage, they exempted this loan from our debt to income ratio when purchasing the new house.

Only catch is there can be a fair amount off closing cost fees for a "temporary" loan, also FRB wanted us to keep a lot of cash on hand -- which sounds like you might not want to do.
123
Posts: 10415
Joined: Fri Oct 12, 2012 3:55 pm

Re: Need cash for down payment - Bay Area

Post by 123 »

The bridge loan option is likely the most practical, if your income will support it. The primary risk is a collapse in housing prices before you are able to sell your current home.
The closest helping hand is at the end of your own arm.
harikaried
Posts: 2613
Joined: Fri Mar 09, 2012 2:47 pm

Re: Need cash for down payment - Bay Area

Post by harikaried »

checkcheck wrote: Tue May 17, 2022 12:35 pmIt seems that selling investments is the easiest but also the least tax efficient
If your taxable investments are losses, then it might actually be the most tax efficient in that you get to deduct losses / offset gains. If you want to maintain your equity exposure, you could exchange bonds to equities in tax advantaged accounts at the same time.
Topic Author
checkcheck
Posts: 22
Joined: Fri Jan 14, 2022 6:33 pm

Re: Need cash for down payment - Bay Area

Post by checkcheck »

Thanks for the replies on this.

For a bridge loan, are there any leading lenders that specialize in this? Forgive my ignorance, but what is the typical order of operations for this process? Is it: mortgage preapproval --> offer --> win --> secure bridge?

The investment account doesn't have a material amount of losses that could be harvested.
runninginvestor
Posts: 1796
Joined: Tue Sep 08, 2020 8:00 pm

Re: Need cash for down payment - Bay Area

Post by runninginvestor »

Also maybe ask about recasting and any fees associated with that. You could maybe come to closing with a lower DP, if you expect to sell your house soon then use the proceeds to recast. Ask when PMI falls off too. Typically it'll automatically fall off at 78% LTV.
psteinx
Posts: 5801
Joined: Tue Mar 13, 2007 2:24 pm

Re: Need cash for down payment - Bay Area

Post by psteinx »

1) You haven't said much about the investments. If they're liquid stocks/funds, with minimal embedded capital gains, the simplest and best approach is probably to sell them down. If they're illiquid and/or have high embedded CG, that changes things.

2) You may want to explore a portfolio loan, which is similar to a margin loan, but based on an aggregate portfolio moreso than specific positions. Or, you could just explore a margin loan. Either way, you may get very attractive rates, plus relatively low hassle. That said, I don't have personal experience with either one. Be aware that broker rates may vary CONSIDERABLY with these things - Interactive Brokers is often considered top tier for this stuff.
tsm1th
Posts: 38
Joined: Thu Aug 22, 2013 1:48 am

Re: Need cash for down payment - Bay Area

Post by tsm1th »

checkcheck wrote: Tue May 17, 2022 1:09 pm Thanks for the replies on this.

For a bridge loan, are there any leading lenders that specialize in this? Forgive my ignorance, but what is the typical order of operations for this process? Is it: mortgage preapproval --> offer --> win --> secure bridge?

The investment account doesn't have a material amount of losses that could be harvested.
I can speak from my experience. We did both the bridge and primary loan in parallel.

1. Talk to banker lay all cards down on table.
2. Get house appraised. Took a few weeks.
3. Get bridge loan approved by banker based on a % of appraised value.
4. Get pre-approval letter so you can go shopping.
5. Make offers, get accepted.
6. Execute bridge loan and primary mortgage and then close quickly.

Again we did ours through a bank as a cash out secondary mortgage. You can also look up places that specialize in hard money loans.
dred pirate
Posts: 667
Joined: Tue Nov 27, 2018 10:46 am

Re: Need cash for down payment - Bay Area

Post by dred pirate »

tsm1th wrote: Tue May 17, 2022 12:43 pm You might want to look into a bridge loan. That'll allow you to sell less/none of your investments. My wife and I just did this last month (also in the Bay Area). We used First Republic Bank -- they created a "bridge" loan that was actually a cash-out second mortgage, they exempted this loan from our debt to income ratio when purchasing the new house.

Only catch is there can be a fair amount off closing cost fees for a "temporary" loan, also FRB wanted us to keep a lot of cash on hand -- which sounds like you might not want to do.
what kind of fees / interest rate do you pay on something like this? we might find ourselves in a similar situation - we will sell our place fast no problem, but depending on timeline, we don't want to sell until we have a place under contract/already closed on.
tsm1th
Posts: 38
Joined: Thu Aug 22, 2013 1:48 am

Re: Need cash for down payment - Bay Area

Post by tsm1th »

dred pirate wrote: Tue May 17, 2022 4:26 pm
tsm1th wrote: Tue May 17, 2022 12:43 pm You might want to look into a bridge loan. That'll allow you to sell less/none of your investments. My wife and I just did this last month (also in the Bay Area). We used First Republic Bank -- they created a "bridge" loan that was actually a cash-out second mortgage, they exempted this loan from our debt to income ratio when purchasing the new house.

Only catch is there can be a fair amount off closing cost fees for a "temporary" loan, also FRB wanted us to keep a lot of cash on hand -- which sounds like you might not want to do.
what kind of fees / interest rate do you pay on something like this? we might find ourselves in a similar situation - we will sell our place fast no problem, but depending on timeline, we don't want to sell until we have a place under contract/already closed on.
4.5% rate for 180 days. Interest only loan. A few $k for closing costs as well. It was very very expensive from an APR perspective, but priceless as far as allowing us to put home equity down on a new house without taking the debt to income ratio hit or risking a margin loan. Our old house needed ~4 weeks of fixing and updating that we weren't willing to do while living there with little kids. So the bridge allowed us to buy first, fix up old house, sell it, and only move once. But it was expensive! That said when talking about Bay Area real estate, no contingency offers, houses selling after only one week on the market, we feel it was worthwhile in the end.
scoreboard
Posts: 44
Joined: Tue Dec 12, 2017 7:19 am

Re: Need cash for down payment - Bay Area

Post by scoreboard »

I am building a new custom house and instead of a construction loan we secured a "One time close" loan that is a 7 year ARM at 4.25%. First 2 years are interest only and it functions like a construction loan with money paid out as certain milestones are met. I was pretty happy with it. Small regional bank so I'm not going to share where but "one time close" works on google. I own the house I live in outright so no pressure to sell it until my new home is ready. If I put 10% into the loan at once it recalibrates. I thought it was pretty neat and I believe it is a new product.
dred pirate
Posts: 667
Joined: Tue Nov 27, 2018 10:46 am

Re: Need cash for down payment - Bay Area

Post by dred pirate »

tsm1th wrote: Tue May 17, 2022 4:41 pm
dred pirate wrote: Tue May 17, 2022 4:26 pm
tsm1th wrote: Tue May 17, 2022 12:43 pm You might want to look into a bridge loan. That'll allow you to sell less/none of your investments. My wife and I just did this last month (also in the Bay Area). We used First Republic Bank -- they created a "bridge" loan that was actually a cash-out second mortgage, they exempted this loan from our debt to income ratio when purchasing the new house.

Only catch is there can be a fair amount off closing cost fees for a "temporary" loan, also FRB wanted us to keep a lot of cash on hand -- which sounds like you might not want to do.
what kind of fees / interest rate do you pay on something like this? we might find ourselves in a similar situation - we will sell our place fast no problem, but depending on timeline, we don't want to sell until we have a place under contract/already closed on.
4.5% rate for 180 days. Interest only loan. A few $k for closing costs as well. It was very very expensive from an APR perspective, but priceless as far as allowing us to put home equity down on a new house without taking the debt to income ratio hit or risking a margin loan. Our old house needed ~4 weeks of fixing and updating that we weren't willing to do while living there with little kids. So the bridge allowed us to buy first, fix up old house, sell it, and only move once. But it was expensive! That said when talking about Bay Area real estate, no contingency offers, houses selling after only one week on the market, we feel it was worthwhile in the end.
gotcha - completely understand the rationale.

4.5% annual I assume? which isn't bad considering what the 30 year rates are now - I assume that has gone up. Or did you pay 4.5% over 180 days = 9% annual?
manuvns
Posts: 1465
Joined: Wed Jan 02, 2008 1:30 pm

Re: Need cash for down payment - Bay Area

Post by manuvns »

you can move 1.5m to m1 finance and take out 40% of portfolio @ 2.75% rate as portfolio line of credit = 600K , no taxable event or liquidation
Thanks!
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cchrissyy
Posts: 2355
Joined: Fri May 05, 2017 10:35 pm
Location: SF bay area

Re: Need cash for down payment - Bay Area

Post by cchrissyy »

how "ASAP" is asap?

if you mean tomorrow, you need to sell the investments.
there is no time for a heloc, bridge loan, or portfolio loan.

if you are already at a brokerage that offers portfolio loans, then i think it's your fastest option but still could take 2 weeks or so.
60-20-20 us-intl-bond
tsm1th
Posts: 38
Joined: Thu Aug 22, 2013 1:48 am

Re: Need cash for down payment - Bay Area

Post by tsm1th »

dred pirate wrote: Tue May 17, 2022 4:49 pm
tsm1th wrote: Tue May 17, 2022 4:41 pm
dred pirate wrote: Tue May 17, 2022 4:26 pm
tsm1th wrote: Tue May 17, 2022 12:43 pm You might want to look into a bridge loan. That'll allow you to sell less/none of your investments. My wife and I just did this last month (also in the Bay Area). We used First Republic Bank -- they created a "bridge" loan that was actually a cash-out second mortgage, they exempted this loan from our debt to income ratio when purchasing the new house.

Only catch is there can be a fair amount off closing cost fees for a "temporary" loan, also FRB wanted us to keep a lot of cash on hand -- which sounds like you might not want to do.
what kind of fees / interest rate do you pay on something like this? we might find ourselves in a similar situation - we will sell our place fast no problem, but depending on timeline, we don't want to sell until we have a place under contract/already closed on.
4.5% rate for 180 days. Interest only loan. A few $k for closing costs as well. It was very very expensive from an APR perspective, but priceless as far as allowing us to put home equity down on a new house without taking the debt to income ratio hit or risking a margin loan. Our old house needed ~4 weeks of fixing and updating that we weren't willing to do while living there with little kids. So the bridge allowed us to buy first, fix up old house, sell it, and only move once. But it was expensive! That said when talking about Bay Area real estate, no contingency offers, houses selling after only one week on the market, we feel it was worthwhile in the end.
gotcha - completely understand the rationale.

4.5% annual I assume? which isn't bad considering what the 30 year rates are now - I assume that has gone up. Or did you pay 4.5% over 180 days = 9% annual?
4.5% annual. You’re right might be higher now.
fareastwarriors
Posts: 1405
Joined: Tue Feb 14, 2012 11:31 am

Re: Need cash for down payment - Bay Area

Post by fareastwarriors »

Since your portfolio is still $1.5m despite the recent market beatings, personally I'll take a margin loan on my investments. I have a higher tolerance for risk though...
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

Re: Need cash for down payment - Bay Area

Post by calwatch »

Also, there is the box spread. The box spread thread and boxtrades.com has more details but you can get a loan until December 2022 for about 2% APR. if the investments are in Vanguard it may be complicated but it should be easy to execute at most of the other major brokerages, provided you follow the directions.
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