It is increasingly common for families to purchase a new home before their existing one sells. When that happens, the key question becomes how to fund the new purchase: take out a mortgage, or sell investments and repurchase them after your current home closes.
Both options carry costs. A mortgage introduces short-term interest expense and setup fees. Selling investments removes capital from the market and may trigger gains. The right answer depends on a clear, realistic assessment of timing, flexibility, and the true cost of each path.
Start With Feasibility
Before running any numbers, confirm that you can comfortably carry two homes at once. If the current home is paid off, this usually means covering one mortgage and the interim costs of maintaining both properties.
The more important question is how quickly the current home is likely to sell. Many families assume a faster timeline than reality allows, or an optimistic sale price. Build in a buffer. If the home takes six months to sell, will the cash flow still work? Will the proceeds still meet expectations?
Only after answering those questions can you evaluate how to fund the new purchase.
When Selling Investments Makes Sense
In many cases, selling investments is simpler and more cost-effective than taking on a short-term mortgage. The key factor is how much capital gain you would realize. Families are often surprised to find that, after accounting for recent contributions and market pullbacks, they can free up needed cash with only three to four percent of the sale representing actual gains.
Paying tax on those gains may be far cheaper than the interest and fees tied to a temporary mortgage, especially when the alternative is paying seven or eight percent to borrow against a portfolio or existing home. It also removes the friction of underwriting, documentation, and rapid payoff.
When a Loan May Be the Better Bridge
If your portfolio has large embedded gains and freeing up cash would create a substantial tax bill, then borrowing can make more sense. Options include:
- A portfolio line of credit, if your brokerage offers one
- A home equity line of credit on the current home
- A small bridge loan, paired with existing cash reserves
The tradeoff is straightforward: the longer your current home takes to sell, the more interest you pay. If borrowing a million dollars at seven or eight percent for several months produces the same cost as simply realizing capital gains, then selling investments would have been the cleaner choice.
Consider Market Valuations When Weighing Opportunity Cost
Opportunity cost is often overstated. The higher market valuations are at the time you sell, the lower the expected return on those dollars over the near term. In environments where valuations are elevated, the foregone return from temporarily stepping out of the market is less meaningful than many assume.
This is why the decision should be grounded in current conditions, not long-term averages.
Practical Flexibility Matters More Than Perfect Precision
The goal is not to engineer the mathematically perfect solution, but to choose the option that keeps you flexible, avoids unnecessary interest, and doesn’t rely on best-case assumptions about how quickly your home will sell.
In many cases, a blended approach — limited securities sales, some cash reserves, and a modest credit line — provides the cleanest path to closing without overextending or overpaying.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on evaluating home purchase options and short-term liquidity decisions, listen to the full podcast episode here.