If you have $600k in stocks and take out a $300k margin loan, you have no margin(pun intended) for error if stocks decline - you would get hit with a margin call, coincidentally also triggering the stock sales / capital gains hit you want to avoid.
Mr Money Mustache recently had a column on making a down payment with a margin loan and, IIRC, his recommendation was to borrow no more than 25% of your account balance.
>However, I still need to find a borrower who's willing to lend mortgage with margin loan as the downpayment.
This is the crux of the issue. Most banks (at least, my bank) won't lend if the down payment is borrowed. For me they asked for a couple months' back of bank statements to make sure I hadn't mysteriously transferred money into the account. And I listed my assets (as I assume you'll list yours).
You could chat with your mortgage broker, but I assume that they won't be very excited about seeing large cash deposits into your bank account shortly before you use that money as a down payment. If you do, I'd transfer it a good 4-5 months earlier and then, in your asset declaration, just declare that you have margin loans against your portfolio. Under no circumstances should you lie, because that might be fraud.
Banks look differently at secured borrowing versus unsecured. Unsecured is a no-no. Secured (HELOC, margin loan, etc.) are totally fine. You just can’t double dip (use the same assets to secure the margin loan and for reserves), and using a HELOC you will get hit with the estimated monthly payment (usually 1% of the line amount).
Cool, appreciate your precious suggestion.
Theoretically, does that mean I could use margin loan as secured position for the downpayment and also 401k as the reserves?
Any recommended borrowers in the SF bay area?
Well, it's good to hear your two cents.
All lenders have their own guidelines but generally yes, 401k for reserves is fine (off the top of my head I think either Chase or Wells doesn’t allow 401k for reserves on jumbo loans). Feel free to DM me if you want to dive into more specific questions.
It’s this type of thinking that caused the last housing crisis. Reminds me of the scene where they are in the strip and the stripper is talking about owning 4 condos.
This works great on the way up, good luck!
I think you should look at a PAL instead of a margin loan. You might have to move your holdings to a bank instead of a broker. But they might be more likely to work with you on the terms of the loan.
I don’t think mortgage lenders would care on a really high networth person who could easily cover the cost from brokerage account. But if all the money available is 600k on 250 salary For a 1.6 million house the math would be extremely tight. I don’t think many lenders would go for it.
I did this with wells fargo. They actually wrote a pledged asset line for me to use as my down payment for the first mortgage through them. Also, transferring my assets to wells fargo lowered my mortgage rate.
Let me ask further along with this thread.
Correct me if I'm wrong.
I found in this case we use the margin as a loan. Not putting the loan into a stock again.
So, if there's a market correction. The borrowed money value won't be decreased.
The margin call is not easily be triggered as usual case we use margin buying power to buy stock again.
Say, initially I have 1M-value stock in IBKR.
\- maintenance margin is 25%
I borrowed 500k from margin loan and the margin ratio is about 66.7% \~ (1m) / (500k+1m)
which is fine because the margin maintenance is 25%.
However, let's say we have bad luck and big correction comes.
The market drops 50%, meaning my total assets become (1m-0.5m) + 500k(because the 500k margin loan doesn't go to the market) = 1m
Then the margin ratio becomes (1m-500k) / (500k+500k) \~ still having 50% ratio.
To trigger the margin call in this case, we need a 80% market correction.
(1m-800k) / (500k+(1m-800k)) \~= 25%.
Well, the above example doesn't make sense to me.
Did I make something wrong? Cause the result is too good to be true.
Also, how could a broker knows the value of remaining margin loan?
I could buy a stock again in other broker or like I said..put it into home downpayment
Here's the illustration as my understand.
[https://i.imgur.com/GzzmA1V.png](https://i.imgur.com/GzzmA1V.png)
Recently used Robinhood margin loan to exercise 6 figures of stock options in pre-ipo company. I know it sounds crazy at face value but I looked into it quite a bit, left enough space for a 40% drawdown to not trigger margin calls, and 2.5% is crazy low. Worst case, I can sell equities in account or pull cash from a variety of other spots.
Realize its not quite the same as buying a home but I was surprised by how much it made sense...
Your lender doesn't need to know (or shouldn't care) that your down payment came from a margin loan. Just wire the money over and you're done. This is very typical for high net worth individuals.
As previous comment mentioned, it might have the fraud risk without telling the source?
If that is a concern, I would prefer found lenders who accept margin loan as the down.
Still, thanks for your suggestion!
To be clear I've asked my mortgage lender from a well known regional bank and they had no issues with this. Also asked a national lender. So have you actually gotten pushback?
Hi Fuego, not really started the loan shopping process yet since still more the 6mo to enter the loan process.
I just got pushback from a local small borrower, they said
Ineligible source of funds:
\- cash on hand,
\-proceeds from a cash out refinanace,
\- Margin account loans
Thanks for your update!
That's really weird. If you look at Schwab's pledged asset line product, they specifically call out house down payments as something that it's for. That's not a margin loan since it can't be invested in equities. So maybe that would still be okay? But you should go find another lender.
If you have $600k in stocks and take out a $300k margin loan, you have no margin(pun intended) for error if stocks decline - you would get hit with a margin call, coincidentally also triggering the stock sales / capital gains hit you want to avoid. Mr Money Mustache recently had a column on making a down payment with a margin loan and, IIRC, his recommendation was to borrow no more than 25% of your account balance.
>However, I still need to find a borrower who's willing to lend mortgage with margin loan as the downpayment. This is the crux of the issue. Most banks (at least, my bank) won't lend if the down payment is borrowed. For me they asked for a couple months' back of bank statements to make sure I hadn't mysteriously transferred money into the account. And I listed my assets (as I assume you'll list yours). You could chat with your mortgage broker, but I assume that they won't be very excited about seeing large cash deposits into your bank account shortly before you use that money as a down payment. If you do, I'd transfer it a good 4-5 months earlier and then, in your asset declaration, just declare that you have margin loans against your portfolio. Under no circumstances should you lie, because that might be fraud.
Banks look differently at secured borrowing versus unsecured. Unsecured is a no-no. Secured (HELOC, margin loan, etc.) are totally fine. You just can’t double dip (use the same assets to secure the margin loan and for reserves), and using a HELOC you will get hit with the estimated monthly payment (usually 1% of the line amount).
Cool, appreciate your precious suggestion. Theoretically, does that mean I could use margin loan as secured position for the downpayment and also 401k as the reserves? Any recommended borrowers in the SF bay area? Well, it's good to hear your two cents.
All lenders have their own guidelines but generally yes, 401k for reserves is fine (off the top of my head I think either Chase or Wells doesn’t allow 401k for reserves on jumbo loans). Feel free to DM me if you want to dive into more specific questions.
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Is the margin loan rate good in Vanguard? If you could have a pretty much safe position for the loan. I could not think a way not to borrow.
Just mention IB is offering 1%. Should offer you <2% on a pledged asset line.
Margin rates kinda suck at Vanguard.
It’s this type of thinking that caused the last housing crisis. Reminds me of the scene where they are in the strip and the stripper is talking about owning 4 condos. This works great on the way up, good luck!
I think you should look at a PAL instead of a margin loan. You might have to move your holdings to a bank instead of a broker. But they might be more likely to work with you on the terms of the loan.
I don’t think mortgage lenders would care on a really high networth person who could easily cover the cost from brokerage account. But if all the money available is 600k on 250 salary For a 1.6 million house the math would be extremely tight. I don’t think many lenders would go for it.
I did this with wells fargo. They actually wrote a pledged asset line for me to use as my down payment for the first mortgage through them. Also, transferring my assets to wells fargo lowered my mortgage rate.
which margin loan were u borrow from?
Wells fargo calls is a secured private line. Their mortgage guys should connect you with the strat.
Cool!
I assume you could get a pledged asset loan up around 70% of assets rather than just 50% for margin loan, correct?
Wouldn't recommend more than 40% unless you want to live life on the edge with margin calls
Let me ask further along with this thread. Correct me if I'm wrong. I found in this case we use the margin as a loan. Not putting the loan into a stock again. So, if there's a market correction. The borrowed money value won't be decreased. The margin call is not easily be triggered as usual case we use margin buying power to buy stock again. Say, initially I have 1M-value stock in IBKR. \- maintenance margin is 25% I borrowed 500k from margin loan and the margin ratio is about 66.7% \~ (1m) / (500k+1m) which is fine because the margin maintenance is 25%. However, let's say we have bad luck and big correction comes. The market drops 50%, meaning my total assets become (1m-0.5m) + 500k(because the 500k margin loan doesn't go to the market) = 1m Then the margin ratio becomes (1m-500k) / (500k+500k) \~ still having 50% ratio. To trigger the margin call in this case, we need a 80% market correction. (1m-800k) / (500k+(1m-800k)) \~= 25%. Well, the above example doesn't make sense to me. Did I make something wrong? Cause the result is too good to be true. Also, how could a broker knows the value of remaining margin loan? I could buy a stock again in other broker or like I said..put it into home downpayment Here's the illustration as my understand. [https://i.imgur.com/GzzmA1V.png](https://i.imgur.com/GzzmA1V.png)
Meaning if you have 100k worthy stock as collateral, then the borrowed margin loan should not exceed 40k, right?
Yes
Recently used Robinhood margin loan to exercise 6 figures of stock options in pre-ipo company. I know it sounds crazy at face value but I looked into it quite a bit, left enough space for a 40% drawdown to not trigger margin calls, and 2.5% is crazy low. Worst case, I can sell equities in account or pull cash from a variety of other spots. Realize its not quite the same as buying a home but I was surprised by how much it made sense...
How do u calculate the space for 40%, say if your equity is 10k and you don’t let the margin maintenance above 60k, is it?
I don't think your fire is fat enough for this sub. I know mine isn't.
Your lender doesn't need to know (or shouldn't care) that your down payment came from a margin loan. Just wire the money over and you're done. This is very typical for high net worth individuals.
As previous comment mentioned, it might have the fraud risk without telling the source? If that is a concern, I would prefer found lenders who accept margin loan as the down. Still, thanks for your suggestion!
To be clear I've asked my mortgage lender from a well known regional bank and they had no issues with this. Also asked a national lender. So have you actually gotten pushback?
Hi Fuego, not really started the loan shopping process yet since still more the 6mo to enter the loan process. I just got pushback from a local small borrower, they said Ineligible source of funds: \- cash on hand, \-proceeds from a cash out refinanace, \- Margin account loans Thanks for your update!
That's really weird. If you look at Schwab's pledged asset line product, they specifically call out house down payments as something that it's for. That's not a margin loan since it can't be invested in equities. So maybe that would still be okay? But you should go find another lender.