Strategy for buying a new house with [a mix of assets]

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haniamam
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Joined: Sun Jan 21, 2018 10:30 pm

Strategy for buying a new house with [a mix of assets]

Post by haniamam » Sun Jan 21, 2018 11:05 pm

[original title edited from "Strategy for buying a new house with cash" - admin alex]

I'm looking to purchase a new house priced at $850k. My question is related to what approach I should take in purchasing this.

Leaving retirement savings aside, here's a summary of my current cash/real estate portfolio:
  • Current property worth approx. $425k which I plan on selling after purchase of new property just due to timing
  • $125k in company stock with about $50k in long term gain which I could offset with losses from before
  • $400k in stock mutual fund with approx. $100k in long term gain
  • $125k cash
The options I'm considering are:
  • Pay off the new property in full
  • Pay $650k down and take a $200k loan for 10 or 15 years fixed
To pay in full, I'm counting the $400k from current property plus $125k cash plus $125k company stock that I would sell and also sell $200k of the stock mutual fund. With this approach, since I won't be able to sell the current property after purchase of the new property, I'll need to take some kind of a loan temporarily.

Should I take a home equity loan in this case for $400k until the house is sold or a traditional fixed or ARM or something like that? I'm thinking with a traditional mortgage, I'll have to deal with closing costs etc..


The other option is not sell anything of the stock mutual fund. Initially take a $600k loan, which would reduce to $200k after I put $400k of the current property sale towards the loan.

Again, in this scenario, should I take a $400k home equity loan which will be short lived and $200k conventional fixed mortgage for 10 or 15 years or just take a $600k conventional mortgage and then pay off $400k as soon as it's available?


Thanks in advance for your thoughts on this strategy and any other suggestions you have on different strategies.

scifilover
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Joined: Sun Apr 14, 2013 12:56 pm

Re: Strategy for buying a new house with [a mix of assets]

Post by scifilover » Mon Jan 22, 2018 8:58 am

Welcome....
Without knowing more about your income and expense situation, it is difficult to offer comments about your purchase options. Do you have other debt?
The temporary financing is called a bridge loan. Depending on where you bank your bank may offer this service. The amount could be some high percentage of your current house value. Also, is the $425k current home value net of what it will cost to sell it?

Since it seems you have already found your new home, given the current high levels of equities, have you considered converting some of these assets to cash now? If there was a ten percent correction this week how would that affect your plans?

Also, since this is a new house, there will no doubt be significant expenses you will incur after purchase. Window coverings for example are typically not included, neither is landscaping. If you put all your cash into the purchase how will you handle these items?

haniamam
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Joined: Sun Jan 21, 2018 10:30 pm

Re: Strategy for buying a new house with [a mix of assets]

Post by haniamam » Mon Jan 22, 2018 1:19 pm

Thank you for your response. My answers to your questions below.

I have no other debt. The current house is paid in full. My income is approx. $150k. I'm counting approx. $400k as net for house after cost of selling it.

I have been converting to cash the company stock but have not converted the mutual fund since I was waiting for some advice on the approach to take. But I see your point, I should at least convert the minimum amount I'm thinking to put down for cash asap! Thanks for that.

Even after paying off the new house, I should have about $200k left over from the sale of the old house if I take the pay in full option.

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ohboy!
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Re: Strategy for buying a new house with [a mix of assets]

Post by ohboy! » Mon Jan 22, 2018 1:25 pm

Why are you moving/upgrading? I'm not sure I feel comfortable having an $850k house with $150k income even if the house is paid in full. What are property taxes like where you are?

haniamam
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Re: Strategy for buying a new house with [a mix of assets]

Post by haniamam » Mon Jan 22, 2018 1:47 pm

We're moving because we need more space and would like to upgrade to a better neighborhood. The property taxes are $14 per $1k.

chevca
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Re: Strategy for buying a new house with [a mix of assets]

Post by chevca » Mon Jan 22, 2018 1:54 pm

I would not take out any HELOC or mortgage on the current house. That's going to mess with qualifying for any new loan. You do have a lot of assets. But, I don't think a mortgage company is going to say ok to $150k income, $400k HELOC, $850k home, and a good size new mortgage. They aren't going to be as confident you will sell the house easily, or at all. They're not about taking chances.

I agree, this seems like quite an upgrade. You're doubling your house value. Is that the same for size, utilities, taxes, and all? Is there a reason for this? Or, you just want to and can? If so, I'd say putting as much down in cash as you can is your best move.

barnaclebob
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Re: Strategy for buying a new house with [a mix of assets]

Post by barnaclebob » Mon Jan 22, 2018 2:03 pm

We bought a house with similar circumstances. New House price was 900k. Equity in old house was 300k, desired loan was 400k. We brought 200k in cash for a traditional down payment + a second mortgage of 300k + 400k traditional mortgage. The second mortgage will be paid when the old house is sold.

If your goal is to have the new house paid off then just get a loan for the value of the old house and use your taxable assets for a ~50% down payment.

You could also go the HELOC route if it will enable an all cash offer. There might be less loan origination fees that way.

haniamam
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Re: Strategy for buying a new house with [a mix of assets]

Post by haniamam » Mon Jan 22, 2018 10:14 pm

ohboy! wrote:
Mon Jan 22, 2018 1:25 pm
Why are you moving/upgrading? I'm not sure I feel comfortable having an $850k house with $150k income even if the house is paid in full. What are property taxes like where you are?
Curious why you do not feel comfortable with $150k income if the house is paid in full and 200k in cash savings left over.

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