Help with Home Sale

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Pennybags
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Joined: Tue Feb 14, 2012 7:08 pm

Help with Home Sale

Post by Pennybags »

Hello,

We are in the process of selling our home. We have a contract on the home we wish to purchase with a closing date at the end of the month. We had a contract on our current home, but the contract fell through due to financing issues with the buyer. While we are fortunate to have another offer on our home, the closing date is after the closing date of the house we wish to purchase. Our current home is paid off and we were planning on using the equity to buy our new home and have only a small 100k mortgage. So, as I see it we have three options:

(1) Take out a bigger mortgage. There is no pre-payment penalty, but I have to keep the mortgage for at least a year before paying it off. I am assuming that the closing costs will be slightly higher because the loan amount will be larger. It is a 30 year mortgage at 4.25%, but I was planning on paying it back in a couple of years.
(2) Cash out some securities. We could finance the difference ourselves with securities that are not in a 401k or IRA. However, I am assuming we would need to pay capital gains. My rough calculation is that the additional amount in capital gains would be $3500. We could probably easily replace the money within 30 days, but I don't think this helps us any.
(3) Take out some sort of personal loan. The credit union offers a personal loan at about 8.5% and we could pay it back within a couple of weeks. Don't know what other costs would be associated with the loan, but I am assuming that such costs exist.

What would be our best and least expensive option? Any thoughts or experience to share would be greatly appreciated!
Twins Fan
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Re: Help with Home Sale

Post by Twins Fan »

Any savings account or emergency fund stash to dip into? If that's an option, seems you would replace that soon enough.
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Pennybags
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Re: Help with Home Sale

Post by Pennybags »

Thanks. We are already using our emergency fund for the purchase of the house. One of the options is to sell some stock, but I would be incurring capital gains in the process. Wondering if this would be the cheapest option if we are unable to coordinate the purchase and sale of the two homes.
bigred77
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Re: Help with Home Sale

Post by bigred77 »

I would simply request to push back the closing date of your purchase to that of your new closing date on your current home.
ginyah
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Joined: Tue Jun 07, 2011 1:53 pm

Re: Help with Home Sale

Post by ginyah »

sometimes a bank will give you a 'bridge loan' to cover you until you close on the old house.
bigred77
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Re: Help with Home Sale

Post by bigred77 »

A question to the board because I don't know:

If the OP want to sell securities, then can get the cash back and rebuys the identical securities within 30 days, is that not considered a "wash sale" like it would be if they we're trying to tax loss harvest?
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jfn111
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Location: Minnesota

Re: Help with Home Sale

Post by jfn111 »

Why not use a HELOC from the paid off house to finance the second house?
ralph124cf
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Re: Help with Home Sale

Post by ralph124cf »

bigred77 wrote:A question to the board because I don't know:

If the OP want to sell securities, then can get the cash back and rebuys the identical securities within 30 days, is that not considered a "wash sale" like it would be if they we're trying to tax loss harvest?
If there is a loss and you rebuy the same security within 30 days, it is a wash sale. If there is a gain, then it is not considered a wash sale.

Ralph
ralph124cf
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Re: Help with Home Sale

Post by ralph124cf »

If you have enough stock in your account, you could get a margin loan from your broker.

Ralph
terabitdan
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Re: Help with Home Sale

Post by terabitdan »

You don't share the additional amount of money needed, so I ran a couple calculations using $50,000 as the basis.

Increasing the home mortgage by $50,000, paying 2 points and paying it off in 6 months would cost you $1000 in points, and $658.30 in interest, less your tax dedication.

the 3500 capital gains depends on you tax bracket, assuming 15% it would be $525.

A 8.5% 6 month loan with no points would cost $1,246.90 in interest.

A shorter payback time would significantly reduce the costs of either loan option.

Dan
ras4250
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Re: Help with Home Sale

Post by ras4250 »

Depending on how much you need, what about a loan from LendingClub? The max there is $35,000. The interest rates are high, but there is no prepayment penalty. You could get a $35,000 loan at ~ 18-24% interest. But you could pay it back within 1-2 months if you want, thus minimizing your interest. There is a loan origination fee of 1-5% to deal with as well. That depends on what your credit profile is.
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Pennybags
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Re: Help with Home Sale

Post by Pennybags »

Thank you for your responses. I should have added that the additional amount needed would be significant. It is $200,000. So, we would be going from a 100k mortgage to a 300k mortgage, but would have the money to quickly pay it down. Alternatively, I could cash out $200,000 in stock that is not in an IRA or retirement account. The captial gains is approximately $25,000 which would be $3750 assuming a 15% capital gains rate. The mortgage we are considering has no points. We would of course ask the sellers of the new house to push back the closing date, but I was looking for input on the options assuming that they refused. Any further input would be greatly appreciated.

Dan, is there an online calculator that you used for your calculatons?
fishingmn
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Re: Help with Home Sale

Post by fishingmn »

Offer the sellers of the house you are buying $1,000 if they agree to push the closing to a date that works for you.

Win-win
terabitdan
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Re: Help with Home Sale

Post by terabitdan »

I'm sure there are online calculators for a mortgage, but I just used an app on the iPhone. I assumed 6 months of payments but just another option is a tIme value of money... Borrowing 200000 for 6 months with no payments will cost $4551.01. The same at 8.5% is 8,632.21. The negative for adding it to the mortgage is your payment will be based on the total borrowed until it is either payed off or you refinance. Using a HELOC will cost a little more (closing costs) but avoids the increased minimum payment. Based on your question that doesn't seem to be a problem, you intend on paying much higher than the required payments...

The other thing I would consider is if this is a good year to take capital gains and pay the tax? I'd review the 2014 changes in capital gains. With the income you must have to support the payments that capital gain might make you subject to the excise tax. Can you increase your contributions to offset the extra income, or is there a way to get the capital into a ROTH or HSA after the house sells?

Personally, it would be adding to the mortgage or selling stock. The personal loan is to high a price for me. Now if you can get a much lower interest rate by securing it with your stock then it might be an excellent option.

Dan
Twins Fan
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Re: Help with Home Sale

Post by Twins Fan »

Thinking like a banker here... not that I really can :D ..., but I'd say with you buying an new home and your current home not being actually sold yet getting a $200k loan from a bank would be tough going. Just my guess there, so... Plus whatever fees would go along with that. I would cross that one off the list.

Taking out a mortgage to pay off quickly anyway plus the fees there and interest that would be paid in a couple years... I might cross that one off also.

If the plan is to pay the new house off ASAP, I think I would lean towards selling the stocks, paying the capital gains tax, and replacing the funds there when your old house sells might be the way to go. You wouldn't be out of the game long there, so not missing out on much either way. And, after last year you're probably selling at a nice little profit. That's the way it's supposed to work, right?

It's seems you want to own the new house as quickly as possible, so I say own it as quickly as possible with no loans at all.
Jack FFR1846
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Re: Help with Home Sale

Post by Jack FFR1846 »

Push back closing. I like the $1000 offer. Do it as an addition onto the price of the home and offer it through their real estate agent. The agent will see another $50 in her commission and like it.


I have seen so many friends get stuck because they bought and the sale fell through, only to be stuck with the old house for years. My last house....I did the sale closing at 9am and the buy closing at 1pm. Had something gone wrong with the sale, we would have stopped everything.
Bogle: Smart Beta is stupid
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