Download REAL ESTATE JUMBO JUNGLE Many home buyers sell stock

10/21/2015
Selling Stocks to Buy a Home? How to Do It Right - WSJ
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REAL ESTATE | JUMBO JUNGLE
Many home buyers sell stock holdings to finance a home purchase. But there are
alternatives to pulling out of the stock market
ILLUSTRATION: CHRIS GASH
By ANYA MARTIN
Oct. 21, 2015 11:35 a.m. ET
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10/21/2015
Selling Stocks to Buy a Home? How to Do It Right - WSJ
To cover the down payment required for a jumbo loan, some home buyers are borrowing
money—from themselves.
When buying a home in Avon, Conn., Matthew and Shannon Carbray decided to sell
some of their stock holdings to make a down payment on a $1.02 million, five-bedroom
property. But initially, they couldn’t agree on the amount to put down.
Knowing that this is the home where the couple plans to stay and raise a family, Mr.
Carbray, a 35-year-old managing partner at Avon, Conn.-based Ridgeline Financial
Partners, wanted to put down 20%, the minimum required down payment for most
jumbo mortgages. He calculated that cash left in the stock market would make greater
gains than the low cost of interest locked in for 30 years, and that interest also is taxdeductible, he adds.
Ms.
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Carbray, a 32-year-old fixed-income portfolio manager at Hartford Investment
Management Co., wanted to cash out more stock and put down 30% because she just felt
more comfortable with lower monthly mortgage payments, Mr. Carbray says. “I was
looking at it mathematically and my wife was looking at it emotionally,” he adds.
In the end, they compromised and put 25% down to buy their home in March.
In 2014, about one-fifth of borrowers sold stocks or bonds or borrowed against their
retirement accounts to finance a home purchase, according to the National Association
of Realtors. (News Corp, which owns The Wall Street Journal, also owns Realtor.com,
the listing website of the National Association of Realtors.)
There are no hard and fast rules regarding if and when to cash in stocks to make a home
purchase. Lenders and financial planners, however, advise borrowers not to panic, just
plan ahead, especially in periods of market volatility. They will caution against
borrowing from a retirement plan, because homeowners risk hefty penalties and an
income-tax bill if they fail to follow loan-repayment terms.
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10/21/2015
Selling Stocks to Buy a Home? How to Do It Right - WSJ
An alternative to selling stocks is getting a loan secured against assets, says Stephen
Stabile, a financial adviser with Merrill Lynch Wealth Management. For example, Bank
of America Merrill Lynch has a “loan-management account” that offers clients a line of
credit based on their Merrill Lynch taxable brokerage portfolio holdings.
The funds can go toward numerous uses, including a mortgage down payment.
Customers with substantial holdings currently may get interest rates that are lower
than on 30-year, fixed-rate jumbo mortgages, but could be higher than on other types of
mortgages, Mr. Stabile says. One recent borrower, a client who was buying a nearly $5
million New York condo, opted to borrow against her stock holdings instead of selling
stocks in a down market.
Borrowers should keep in mind, however, that most banks require a greater collateral
amount, usually 125%, for a securities-backed loan than for straight dollars in a bank
account, to allow for market fluctuations, says Mike McPartland, head of investment
finance for Citibank Private Bank North America. “So if it’s a $250,000 down payment,
the bank would require that $312,500 remain in that investment account the entire
time,” he adds.
However, should the stock market fall precipitously, borrowers could be subject to a
margin call and forced to pay the difference between the required collateral amount and
its current market value, Mr. McPartland says.
Here are a few more factors to consider:
• Don’t wait too long. Home buyers who wait until the last minute to cash in stocks—
hoping that values will rise—risk delaying the home closing, since the sale and money
transfer
transfe
f r can take several business days, says Peter Grabel, managing director of
Stamford,
Stamfo
f rd, Conn.-based Luxury Mortgage Corp. Also, a stock market drop amid a home
purchase could affect
aff
ffect a borrower’s ability to qualify
f for
f r a loan, he adds.
fo
• Liquidate early. Cash in a bank account is worth more than stocks or mutual funds
f nds
fu
when it comes to qualifying
qualify
f ing for
f r a mortgage, because lenders typically value a portfolio
fo
portfo
f lio at
only 70% of its current monetary value, Mr. Grabel says.
• Long-term gains. Borrowers whose stock has appreciated significantly will likely face
capital-gains taxes when they sell their holdings, adding to the cost of the home, Mr.
Stabile says.
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