How Can I Make a Down Payment on a New Home Before I Sell My Existing One? 

We get asked all the time by clients or prospective clients what they can do to buy a house before they sell their existing home. There is usually a problem coming up with the money for the second down payment. Home prices are high, and 20% of a big number is still a big number, so options are limited. Cash is the best option, if you have the cash set aside, it’s the lowest risk, and everybody will accept it. After that, people have the choice of taking money from their IRA for a short period of time, borrowing from their 401k, or taking a home equity line of credit, none of which are ideal.

A home equity line of credit can be great, but you need to plan in advance because it takes a while to set that up, and you need to make sure you have enough equity in your house, and your loan-to-value ratio isn’t too high, and all those other things.

Borrowing from your 401k is generally pretty easy, but if you’re limited to $50,000, then you’re out of the market, and so that’s not great either.

If you decide to take money out of your IRA, once you take money out, you have 60 days to put it back in, and if you don’t get it back in time, it’s a taxable event. And so, if you take 61 days to put that money back in, it’s as if you just had a big windfall of extra income that year that you’re going to have to pay tax on, and then the money’s out of your IRA forever, so that’s something you really don’t want to mess up.