Selling stock to buy a house can be a smart move, but youll want to consider the tax implications of selling stock to buy a house as well as your personal long-term financial goals.
Other factors—such as how long youve held the stock for and whether or not youve incurred losses—will also affect if it makes sense to sell stock to buy a house. Remember, when you sell stock for any reason, you also lose out on any potential gains those stocks may have otherwise made if youd held onto them. Youll also likely have to pay capital gains tax.
Always consult with a professional—including a tax advisor and mortgage provider—before deciding to sell stocks to buy a house. There might be better financial options out there. But, for now, here are some general guidelines to keep in mind about the pros and cons of selling stock to buy a house.
Are you sitting on some stocks and wondering if you should cash them in to buy your dream home? You’re not alone! Many potential homebuyers look at their investment portfolio when it’s time to gather funds for a down payment. But is selling stock to fund your home purchase a smart financial move? Let’s dive into everything you need to know before you hit that “sell” button.
The Quick Answer: Yes, But Consider the Tax Consequences
Yes, you absolutely can sell stocks to fund your home’s down payment It’s your money after all! However, just because you can doesn’t always mean you should Selling stocks triggers tax consequences that might take a big bite out of your profits – potentially leaving you with less for your down payment than you expected.
Tax Implications When Selling Stock for a House Down Payment
The biggest consideration when selling stocks for a home purchase is the capital gains tax you’ll face. Unfortunately, the IRS doesn’t give you a special break just because you’re using the money for a home.
Long-Term vs. Short-Term Capital Gains
How long you’ve owned your stocks makes a huge difference in how much tax you’ll pay
Long-term capital gains tax applies when you’ve held the stock for more than a year. These rates are generally more favorable:
| Tax-filing status | 0% tax rate | 15% tax rate | 20% tax rate |
|---|---|---|---|
| Single | $0-$47,025 | $47,025-$518,900 | $518,900+ |
| Married, filing jointly | $0-$94,050 | $94,050-$583,750 | $583,750+ |
Short-term capital gains tax hits you when you’ve owned the stock for less than a year These gains are taxed at your regular income tax rate, which ranges from 10% to 37% depending on your tax bracket
A Real-World Example
Let’s say you’re single with a $70,000 salary. If you sell stocks with a $25,000 profit:
- With short-term gains (less than 1 year held): You’d pay about $5,500 in taxes (at the 22% income tax rate)
- With long-term gains (more than 1 year held): You’d pay about $3,750 (at the 15% long-term capital gains rate)
That’s a difference of $1,750 just by waiting until you’ve held the stock for at least a year!
When Selling Stock Makes Sense for a Home Down Payment
Despite the tax implications, there are times when selling stocks for a down payment might be the right move:
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When your stocks have significantly appreciated – If your investments have done really well, taking some profits could be smart, especially if you’re concerned about a market downturn.
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When you need to reach 20% down payment – Putting 20% down helps you avoid private mortgage insurance (PMI), which can save you thousands over the life of your loan.
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When it helps you qualify for better mortgage terms – A larger down payment often means better interest rates and loan terms.
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When you have diversification goals – If too much of your wealth is tied up in stocks, using some for real estate creates better diversification.
Smart Steps Before Selling Stock for a Home Purchase
If you’re leaning toward selling stocks, take these smart steps first:
1. Talk to a Tax Professional
The tax implications of selling stocks can get complicated fast. A tax pro can help you understand your specific situation and potentially find ways to minimize the tax hit. They might suggest strategies like:
- Tax-loss harvesting – Selling some losing investments to offset the gains from your winners
- Timing your sales across multiple tax years to avoid pushing yourself into a higher bracket
- Determining which specific shares to sell (if you’ve purchased the same stock multiple times)
2. Consult with a Mortgage Lender
Before selling anything, chat with a mortgage lender about:
- Getting pre-approved so you know your budget
- Understanding your financing options and down payment requirements
- Receiving personalized recommendations based on your specific finances
- Learning about alternative financing options that might be better than selling stock
Alternatives to Selling Stock for a Down Payment
Before you liquidate your investments, consider these alternatives:
Down Payment Assistance Programs
These government or non-profit programs help homebuyers with down payments or closing costs. Requirements typically include:
- Being a first-time homebuyer
- Having income below certain thresholds
- Committing to live in the home for 3-5 years
Check out programs like the National Homebuyers Fund or contact your state’s housing agency.
Gift Funds from Family
If you have generous family members willing to help, gift funds can be a great option. Gift funds up to $17,000 aren’t taxed, according to the IRS. You’ll just need a gift letter that includes:
- The giver’s info
- Your relationship
- The gift amount
- A statement that repayment isn’t expected
Low Down Payment Mortgage Options
You might not need as much for a down payment as you think:
| Loan Type | Minimum Down Payment | Basic Requirements |
|---|---|---|
| Conforming (Fannie Mae/Freddie Mac) | 3% | Must meet income limits |
| FHA | 3.5% | 500+ credit score, 43% DTI ratio |
| USDA | 0% | Property must be eligible, income requirements |
| VA | 0% | Must be active-duty military or veteran |
High-Interest Savings Account
If you’re not in a rush to buy, consider stashing your funds in a high-yield savings account. This way, your money grows without the market risk of stocks, and you’re not triggering capital gains taxes.
Making Your Final Decision
When deciding whether to sell stocks for your home down payment, ask yourself:
- Have I held these stocks for more than a year? (If not, can I wait until I have?)
- What’s my expected tax burden from the sale?
- How will selling affect my long-term investment strategy?
- What’s the opportunity cost of using these funds versus keeping them invested?
- Have I explored all alternative funding sources?
Work With an Experienced Real Estate Agent
A good real estate agent can be incredibly valuable when navigating these financial decisions. They can help you understand the local market, how much house you can afford, and even connect you with lenders who specialize in working with buyers in your situation.
When comparing real estate agents, look for someone who:
- Has experience with buyers in similar financial situations
- Understands investment strategies and can speak to the tradeoffs
- Can recommend trusted financial professionals if needed
- Might offer buyer rebates or other savings opportunities
Final Thoughts
Selling stock to buy a house can absolutely be a smart move in the right circumstances. The key is understanding the tax implications and weighing them against your other options.
Remember, your home is both a place to live AND an investment. Finding the right balance between liquidating existing investments and maintaining your portfolio is a personal decision that depends on your unique financial situation and goals.
Have you considered selling stocks for your down payment? What other funding sources are you exploring? Working with financial professionals can help ensure you’re making the most informed decision possible for your future home and financial health!
Long-term capital gains tax: pay this on stock you’ve held for over a year
Long-term capital gains tax applies to profit from a sale of a stock youve held for over a year. Here’s what you can expect to pay for long-term capital gains tax based on your annual income.
| Tax-filing status | 0% tax rate | 15% tax rate | 20% tax rate |
| Single | 0%–$47,025 | $47,025–$518,900 | $518,900+ |
| Married, filing jointly | 0%–$94,050 | $94,050–$583,750 | $583,750+ |
When to sell stock for a down payment
Once you’ve assessed your tax liabilities and decided which stock to sell for the down payment on your house, consult with several financial professionals who are qualified to give you expert advice.
I Have $120,000 In Stocks. Can I Pull Out Money For A Down Payment?
FAQ
What is the 7% sell rule?
Can you use stocks as collateral for a down payment?
Real estate, savings accounts, investment accounts, cars, and yes, stocks can be used as collateral. For an asset to be used as collateral, it must be in your name and have enough value to secure the loan. As you can imagine, lenders gain an extra layer of lending security when borrowers use collateral.
Should I sell stocks to pay down my mortgage?
The extra liquidity of stocks is worth more than the risk free savings you’d get by paying down the mortgage. If you lose your job, it’s easier to sell stocks than sell your home. You’d still likely get 7% in stocks with more risk and volatility, but you have liquidity.
How much tax will I pay if I sell my stocks?
The current capital gains tax rates are generally 0%, 15% and 20%, depending on your income. Stock dividends may also be subject to these favorable capital gains tax rates as long as they are “qualified,” which is based in part on how long you’ve owned the stock; if not, ordinary income tax rates apply.