Help me decide what to cash for a downpayment

[Goldy]

My wife and I are buying a house and need another 30k for a downpayment so I am looking for advice regarding which investments to sell. We have the following

20k in various stocks
20k in company shares purchased on the first of the year
8k in a S&P 500 mutual fund
13k in a international mutual fund
17k in a total market fund
15k in bonds ranging from 3-5%
10k in another total market fund

We also have about 90k in 401k's and are considering taking a small loan (10k max)since the interest rate is only 4.25 but I dont like the idea of yet another monthly mayment.

We are going to take a 5/1 ARM at 3.5% so I am tempted to sell the bonds that are below 3.5%, plus some of the various stocks that have preforemd well. Then for the final 10k I am thinking of taking out a 401k loan simply because my investments are preforming well above 4.25%

What do you think?

[PMMM]

I don't think it matters except for the 401K. I would not even consider taking a loan from the 401K.

[jpg7n16]

Taking a 401k loan defeats the purpuse of having the downpayment ready. So don't touch the retirement account, and don't get a loan on it. (plus in order to take the 'loan' they sell a portion of your investments and loan you the proceeds. so you like how those investments are performing? yeah, they'd unplug them to make the loan to you. DON'T DO IT )

Quick questions:
- what is your annual income?
- do you file jointly with your wife?
- what is the basis for each of the non-retirement assets?
- what is the holding period for each asset? (over a year or not)
- is this in addition to an EF? or does the money market count as part of your EF?

This will help us determine if you should claim gains or losses for tax purposes, and help us determine the tax treatment of the gain/loss.

[Seeker]

My wife and I are buying a house and need another 30k for a downpayment so I am looking for advice regarding which investments to sell. We have the following

20k in various stocks
20k in company shares purchased on the first of the year
8k in a S&P 500 mutual fund
13k in a international mutual fund
17k in a total market fund
15k in bonds ranging from 3-5%
10k in another total market fund

We also have about 90k in 401k's and are considering taking a small loan (10k max)since the interest rate is only 4.25 but I dont like the idea of yet another monthly mayment.

We are going to take a 5/1 ARM at 3.5% so I am tempted to sell the bonds that are below 3.5%, plus some of the various stocks that have preforemd well. Then for the final 10k I am thinking of taking out a 401k loan simply because my investments are preforming well above 4.25%

What do you think?

I'm a bit curious why you decided to buy 20k of company stock at the beginning of the year when you probably knew you were going to need some monies for a DP?

[disneysteve]

What was your plan going into this? Did you expect all along to be liquidating investments to come up with the down payment or did something happen to cause this issue to crop up at the last minute?

Absolutely under no circumstances should you borrow from your 401k. In fact, erase from your memory that 401k loans even exist. The same goes for withdrawing contributions from Roths. Just forget that those options are even there. They should only be considered in truly and utterly catastrophic situations as a total last ditch effort to save a life or avoid living on the street.

I'm assuming that all of the other options you listed are in taxable accounts. In that case, you want to minimize your tax hit. A good way to do this would be to balance gains and losses if possible. Sell some stuff that has gained and sell other stuff that has lost to leave yourself with little if any taxable gain. Also, as JPG mentioned, consider how long you've owned things. Long term capital gains are more favorably taxed than short term capital gains. Selling individual stocks will cost commissions, so factor that in.

I'm really curious how much you earn and how much the house you are considering is, as well as what I asked initially about what your plan for the down payment was going into this process.

[littleroc02us]

Why would you even think of taking a 5/1 arm?

[Goldy]

Thanks for all the replies. I guess I need to give some additional background info, my wife and I are 27/26 and make 143k combined with an extra 10-15k in annual bonuses. We max our Roth and contribute 13% to a 401k which the company matches 6% and gives another 6% as a investment partnership plan. We both work for the same company.

As for the company stock question, we are allowed to allocate a monthly amount to go towards buying company stock. I allocated the max in 2008 and its a 2 year term so once 2 years have passed you have the option to either take your cash, buy the stocks or buy and sell. Luckily for me I bought at a low price of 17 pounds per share and the current price is somewhere around 44 pounds. I am tempted to sell this stock because both my wife and I contribute to these so each year we have a new one coming due. Since we both work for the same mining company I am a little leery to have so much tied up in our jobs/commodities. Since I purchased these stocks in Jan I will be getting taxed heavily on them right?

The house we are looking at is a 350k and we are going to put 20%+ down so with the ARM we can afford to pay nearly double payments and still maintain our lifestyle. The arm can only increase by 5% points so the max we are looking at is ~8.3 which is still affordable. We are also hoping to move back home in the next 3-5 years so with any luck we will not need to see that increased rate.

[disneysteve]

Why would you even think of taking a 5/1 arm?

Excellent question. The only reason I can think of is if you are absolutely 100% positive you will be in this house for less than 5 years. Even then, though, I don't think it is worth it. What if plans change? What if you can't sell the house in time? And rates are so low that it isn't saving much. We refinanced 2 months ago at 3.99% fixed. Why bother with 3.5% adjustable?

[Goldy]

What was your plan going into this? Did you expect all along to be liquidating investments to come up with the down payment or did something happen to cause this issue to crop up at the last minute?

Absolutely under no circumstances should you borrow from your 401k. In fact, erase from your memory that 401k loans even exist. The same goes for withdrawing contributions from Roths. Just forget that those options are even there. They should only be considered in truly and utterly catastrophic situations as a total last ditch effort to save a life or avoid living on the street.

I'm assuming that all of the other options you listed are in taxable accounts. In that case, you want to minimize your tax hit. A good way to do this would be to balance gains and losses if possible. Sell some stuff that has gained and sell other stuff that has lost to leave yourself with little if any taxable gain. Also, as JPG mentioned, consider how long you've owned things. Long term capital gains are more favorably taxed than short term capital gains. Selling individual stocks will cost commissions, so factor that in.

I'm really curious how much you earn and how much the house you are considering is, as well as what I asked initially about what your plan for the down payment was going into this process.

Thanks for the info regarding the 401k loan.

I am going to take a tax hit either way since I dont have any funds that have losses yet. Thats why I am leaning towards selling the bonds since they have the bulk of the money in the purchase price which should limit my taxable income, Right?

[disneysteve]

make 143k combined with an extra 10-15k in annual bonuses.

We both work for the same company.

As for the company stock question, we are allowed to allocate a monthly amount to go towards buying company stock. I allocated the max in 2008
Since we both work for the same mining company I am a little leery to have so much tied up in our jobs/commodities.

The house we are looking at is a 350k and we are going to put 20%+ down so with the ARM we can afford to pay nearly double payments and still maintain our lifestyle. The arm can only increase by 5% points so the max we are looking at is ~8.3 which is still affordable. We are also hoping to move back home in the next 3-5 years so with any luck we will not need to see that increased rate.

Your plan is quite risky. Not only do you both work for the same company, but you are pouring investment money into that company as well. I would limit your ownership of company stock to no more than 5-10% of your portfolio.

I think 350K is a very reasonable purchase price with an income of 143K. And putting down 20% is certainly the way to go. I would pass on the ARM, though, even though you would like to move in 3-5 years. It juts might not happen that way. And given today's low rates, saying 8.5% is affordable is silly.

[disneysteve]

I am going to take a tax hit either way since I dont have any funds that have losses yet. Thats why I am leaning towards selling the bonds since they have the bulk of the money in the purchase price which should limit my taxable income, Right?

Yes, if you have no losses to harvest, you want the smallest gains. I'd still be looking to cut back on the company stock exposure, though, even if it means taking a tax hit. If you bought at 17 and it is now at 44, that would seem like a nice time to get out.

[MonkeyMama]

The house we are looking at is a 350k and we are going to put 20%+ down so with the ARM we can afford to pay nearly double payments and still maintain our lifestyle. The arm can only increase by 5% points so the max we are looking at is ~8.3 which is still affordable. We are also hoping to move back home in the next 3-5 years so with any luck we will not need to see that increased rate.

I am not a fan of ARMs. I don't think most people who use them, should. But there are exceptions. I don't think it's quite that terrible of a decision. You take on a little risk for the lower rate, yes. But it sounds like a careful, calculated risk.

[Goldy]

Your plan is quite risky. Not only do you both work for the same company, but you are pouring investment money into that company as well. I would limit your ownership of company stock to no more than 5-10% of your portfolio.

I think 350K is a very reasonable purchase price with an income of 143K. And putting down 20% is certainly the way to go. I would pass on the ARM, though, even though you would like to move in 3-5 years. It juts might not happen that way. And given today's low rates, saying 8.5% is affordable is silly.

I agree that we have more risk than most couples since we both work for the same company. With regards to the company stock, its actually very safe because there is no way you can lose money unless you do it on your own accord. If at the end of the 2 year waiting period the stock price is lower than your "purhcase price" you can simply take the money and not buy the stock. The only thing you are out is what you would have gained on that money if it was invested elsewhere. We also get to buy the stock at a -15% so to me it seems like a great deal and warrants both of us to max our contributions.

[Goldy]

I am not a fan of ARMs. I don't think most people who use them, should. But there are exceptions. I don't think it's quite that terrible of a decision. You take on a little risk for the lower rate, yes. But it sounds like a careful, calculated risk.

I agree, there is risk.

Steve, where did you refi at 3.99? The lowest 30yr fixed I could find was at or above 5% though I had only been looking at major banks. We have 760 credit and very low debt (~400/mo in car+student loans) so we would qualify for the best loans that are offered. This is our first house so its exciting but scary at the same time.

[doxie]

I'm curious why you are buying if you are planning on moving in 3-5 years? Are you expecting that the value of the house will increase enough that you will make a profit? It'll have to go up a good chunk to make up for the commission, closing costs, etc. when you go to sell it.

Seemed like a no brainer 8 or 10 years ago, but after what has happened in recent years I would be hesitant.