Here are some things to keep in mind before you do this as per the Motley Fools. Once you decide on a house and you are ready to make an offer, sell the stock immediately on obtaining mortgage approval. It is advisable to go ahead and get the down payment set aside. If you had decided to sell some of your shares, go ahead and do it right away no matter, as your home is nothing to gamble with.
It is also necessary to go for the best outcome in terms of a possible tax liability and it is therefore advisable to consider which of the stock will bring the best tax outcome.
It is also advisable to avoid selling promising long-term holdings and hence it is good to sell the stock, which had been invested for safety and income. Since homeownership can be a better deal than renting if done right, it is necessary to consider the added cost of mortgage insurance combined with the higher loan balance which could combine to produce a monthly payment that is more expensive than rent would be. It is a long-term financial decision to sell stock to raise the funds for a larger down payment while keeping taxes, urgency, and the type of stock in mind when you do it.
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Capital gains tax is the tax rate you pay on capital gains. It depends on how long you owned the shares. It is hence advisable to consider it in the house purchase. If you realize a gain on your stock holdings, you still have to pay a capital gains tax if you immediately intend to put those gains to use by purchasing a house. The IRS views these events as mutually exclusive. You get a tax break only if you sell your home and use the proceeds to buy another home within two years of the sale. In such a case, you avoid capital gains tax unless your gain exceeded the maximum allowed for your filing status.
If you have a 401(k) plan that allows you to borrow against funds in your account, you can obtain a loan to fund your home purchase. By law, the loan amount is the maximum of the lesser of one-half your vested interest. Before selling shares to raise money for a down payment, assess your financial circumstances and consider getting the advice of a good tax advisor.
If selling stock, borrowing against restricted stock or your 401k is not an option, determine if you qualify for down payment assistance program through a state, local or nonprofit organization, especially if you are a first time homebuyer. The number of nonprofit organizations, such as Neighborhood Gold is not limited to first-time homebuyers. If you qualify, you may receive from 3-10 percent of the purchase price toward your down payment and closing costs.
If you would like to discuss finding financing to help you purchase a home, contact me and I can send you a few referrals to top notch mortgage and financing professionals we have worked with in Santa Clara County or check here for our financing partners.