Weighing consequences of selling assets to get down payment for buying house

Question

My partner and I want to buy our first house.

We're thinking about the cash that we'll be required to have on-hand for the down payment and closing costs. We have no debt.

We have money saved in various accounts of ours: brokerage, traditional IRA, Roth IRA, 401k, etc.

Our brokerage account contains various index funds (stocks, nominal bonds, inflation-linked bonds, commodities, etc) whose total value exceeds what we'd need for a down payment for a house.

It feels like we have 2 options (or combo if the 2):

1. Sell enough of those assets to have enough cash on hand for the down payment, closing costs, and for paying any necessary taxes on the sale of those assets, or...
2. Leave the brokerage account untouched, and start saving new monthly income into a simple savings account, and just wait a longer time until that savings account has enough cash for the down payment and closing costs.

Option 2 came to mind since we've always wanted to avoid selling assets because of the tax consequences. But it would involve us accumulating ~$200k that is sitting uninvested (and therefore losing purchasing power in the meantime due to continued inflation), missing out on any upside in the markets over that time (and yes, we know markets go up and down, but we believe as a general rule that one can expect to receive positive compensation for having diversified passive exposure to the markets over time).

What are the factors that we should be considering?

Answer 1

You are looking at two options:

• sell enough investments to get the money you need and pay the taxes.
• start to save for the down payment.

Everybody looks at the low interest rate and wonders if they should put their emergency fund, life happens fund, and down payment money into an investment account that should grow faster. Everybody wonders.

But it would involve us accumulating ~$200k that is sitting uninvested (and therefore losing purchasing power in the meantime due to continued inflation), missing out on any upside in the markets over that time (and yes, we know markets go up and down, but we believe as a general rule that one can expect to receive positive compensation for having diversified passive exposure to the markets over time).

Selling your investments now and buying the house removes them from the market. Redirecting future investments to a regular bank account removes that money from the market. Either way doesn't make a difference regarding lost opportunities.

The question is the 200K worth of investments you want to sell already earmarked for something else? If that money is supposed to protect you if you lose your job, or it is supposed to be for your retirement, then selling now upsets those plans.

If the only reason you don't want to sell is because of the taxes, then deciding to spend the next few years gathering the down payment funds in a taxable brokerage account leaves you with the same issue just x years later.

Determine how much you really need. If you are trying to get enough for 20% down, then talk to your bank, or a mortgage broker to see what you really need. But if the 200K is to be able to afford your dream house, it might mean there are cheaper alternatives, that wont require you to sell as much stock.