Selling Stock to Buy a House in Palm Beach County: Timing, Taxes and Lender Paperwork

Selling stock to buy a house is a common plan for Palm Beach County buyers who have more money in a brokerage account than in the bank. It can work well. Still, the timing, the tax bill and the lender's paperwork all need a plan before you click "sell." This guide walks through when to sell relative to your contract dates, how lenders document money that comes from investments, and which tax questions to bring to your CPA. It does not tell you what to buy or sell, because that is a call for you and your own advisors.

Key takeaways

• Fannie Mae lets lenders value stocks and mutual funds from your latest monthly or quarterly statement. If the account is worth at least 20% more than the cash you need, the lender does not have to document the sale itself.
• For a purchase, lenders usually review the most recent two months (60 days) of account activity, or the latest quarter for quarterly statements.
• A deposit larger than 50% of your total monthly qualifying income counts as a large deposit, and the lender must source it if you need it to close.
• Most stock trades now settle in one business day (T+1). That rule took effect on May 28, 2024.
• Gains on shares held more than one year are long-term and get lower federal rates. Short-term gains are taxed as ordinary income. Florida has no personal income tax on individuals.

Why buyers end up selling stock to buy a house

Many buyers in Boca Raton, Jupiter and Palm Beach Gardens built their savings in a brokerage account, a company stock plan or mutual funds. When it is time to buy, that account often holds most of the down payment. So the question is less about whether to sell and more about when, how much and how to show it to a lender.

Some buyers also look at other options first. For example, a few lenders offer loans backed by an investment account, and some buyers use a mix of cash and investments. Those choices carry their own risks, so talk them through with a financial advisor. This guide focuses on the plain path of selling shares and moving the cash.

How lenders view selling stock to buy a house

Most loans in our area follow Fannie Mae or Freddie Mac rules, or FHA and VA rules. The details below come from the Fannie Mae Selling Guide. Your own lender may add stricter rules on top, which they call overlays.

How the lender values your account

For stocks and mutual funds, the lender uses your most recent monthly or quarterly statement. It can also use a copy of a stock certificate with a dated stock price list. Bonds are valued at their purchase price unless you can show the redemption value.

The 20% cushion rule

Here is the part many buyers miss. If the value of the account is at least 20% more than the money you need for the down payment and closing costs, the lender does not need proof that you sold the shares. That cushion covers a market drop.

However, if the cushion is smaller, you must show that you actually sold and received the cash. In practice, that means a trade confirmation, a statement that shows the sale, and proof the money landed in your bank or went to the title company.

Reserves and stock options

Some loans also require reserves, which are funds left over after closing. For reserves, Fannie Mae lets the lender count 100% of the account value, and you do not have to sell. On the other hand, non-vested stock options cannot be used for the down payment, closing costs or reserves.

Seasoning and large deposits when selling stock to buy a house

Lenders call it "seasoning" when money has sat in your account long enough to show it is yours. For a purchase, Fannie Mae's asset verification rules ask for the most recent full two months of account activity. If your account reports quarterly, the lender uses the most recent quarter.

Next comes the large deposit rule. Fannie Mae defines a large deposit as one deposit that is more than 50% of your total monthly qualifying income. If you need that money to close, the lender must document where it came from. A transfer from your own brokerage account is an acceptable source, but you still need the paper trail.

Build a clean paper trail

The easiest files are the ones a lender can read in one pass. So keep these items ready:

• Two full months of brokerage statements, with every page, even the blank ones
• The trade confirmation for each sale
• The statement or screenshot that shows the cash leaving the brokerage account
• Bank statements that show the same amount arriving
• A short letter explaining the transfer, if the lender asks

Also, avoid moving money in many small pieces between several accounts. Each hop is one more item the underwriter has to trace.

Timing: when to start selling stock to buy a house

There is no single right date, and only you can weigh market risk. Even so, the contract calendar gives you a few natural points to plan around.

Before you make an offer

Some buyers sell early so the cash sits in the bank before they shop. That locks in the amount and makes the paper trail simple. The trade-off is that you give up any gains, or avoid any losses, while you shop. Selling early can also make a strong cash offer easier to prove.

After you sign the contract

Other buyers wait until they have a signed contract and a clear closing date. In that case, you usually owe an escrow deposit within a few days of the contract. Then you owe the rest of your funds at closing. Ask your agent for the exact deposit due dates in your contract, so you can line up the sale in time.

Settlement and wire timing

Under the SEC's T+1 rule, most stock trades settle one business day after the trade date. Then you need time to move the cash to your bank and wire it to the title company. Banks may also have wire cutoff times and daily limits. As a result, it is wise to sell several business days before you need the money, not the day before closing.

Wire fraud is also a real risk at closing. Always confirm wire instructions by calling the title company at a number you already know. Never trust new instructions that arrive by email.

Taxes to ask your CPA about before selling stock to buy a house

This section is a list of questions, not tax advice. Your CPA can run the numbers for your own accounts.

Short-term vs. long-term gains

The IRS says gains on assets held for more than one year are long-term, per Tax Topic 409. Long-term gains get lower federal rates of 0%, 15% or 20%, depending on income. In contrast, short-term gains are taxed as ordinary income. So the date you bought each lot can change the tax bill a lot.

The net investment income tax

Higher earners may also owe a 3.8% net investment income tax. Per IRS Tax Topic 559, it applies above $250,000 of modified adjusted gross income for married couples filing jointly, and $200,000 for single filers.

Losses, lots and estimated payments

Capital losses can offset gains. If losses are larger, you can deduct up to $3,000 a year against other income and carry the rest forward. Ask your CPA which tax lots to sell, and whether a large gain means you should make an estimated tax payment this year.

No Florida income tax

Florida's constitution bars a personal income tax on natural persons. So a Florida resident pays federal tax on the gain but no state income tax. If you moved here recently, though, ask your CPA whether your old state can still tax part of the gain.

How much cash to raise when selling stock to buy a house

Start with the full cash you will need, not just the down payment. That usually includes:

• The escrow deposit
• The rest of the down payment
• Closing costs, such as lender fees, title charges and prepaid items
• The first year of homeowners insurance and money for the escrow account
• Any reserves your lender requires
• Money for taxes on the gain, if you will owe them

Next, add a buffer. Florida closings can shift by a few days, and insurance quotes can change. Our guide to the minimum down payment for a house can help you set the target before you sell.

A step by step plan for selling stock to buy a house

1. Talk to a lender early. Ask how they treat brokerage funds and whether they have overlays.
2. Meet with your CPA. Bring your cost basis and the purchase dates for each lot.
3. Talk with your financial advisor about market risk and which holdings to sell.
4. Set your cash target, including closing costs, reserves and a buffer.
5. Choose your timing: before you shop, or after you have a contract.
6. Sell, then move the cash in one clear transfer.
7. Send the lender every page of the statements that show the sale and the transfer.
8. Confirm wire instructions by phone before closing.

Frequently asked questions

Do I need to finish selling stock to buy a house before I apply?

Not always. Under Fannie Mae rules, if your account is worth at least 20% more than what you need, the lender does not have to see proof of the sale. Many lenders still want the cash moved before closing, so ask yours.

How long does money from a stock sale need to sit in my account?

Lenders usually look at the last two months of statements. A transfer from your own brokerage account is acceptable, but a large one must be traced with statements and a trade confirmation.

Is selling stock to buy a house a taxable event?

Yes, if you sell at a gain in a taxable account. Long-term gains get lower federal rates than short-term gains. A CPA can estimate your bill before you sell.

Can I use unvested stock options for a down payment?

No. Fannie Mae does not allow non-vested stock options as a source of funds for the down payment, closing costs or reserves.

How early should I begin selling stock to buy a house?

Most trades settle in one business day, but bank transfers and wires add time. Many buyers sell at least a week ahead. Your lender and title company can confirm their own deadlines.

Sources

• Fannie Mae Selling Guide, B3-4.3-01 stocks, stock options, bonds and mutual funds
• Fannie Mae Selling Guide, B3-4.2-01 verification of deposits and assets
• Fannie Mae Selling Guide, B3-4.2-02 depository accounts and large deposits
• SEC, T+1 settlement cycle
• IRS, Tax Topic 409: capital gains and losses
• IRS, Tax Topic 559: net investment income tax
• Florida Constitution, Article VII, Section 5

This article is general information, not legal, tax, investment or financial advice. Talk with a licensed financial advisor, CPA and loan officer about your own situation before you sell any investments.

Selling a home to fund your next one? Start with a free home valuation so you know how much cash the sale will free up. Buying in Palm Beach Gardens, Jupiter or Boca Raton? Schedule a buyer strategy call, and we will map your offer, deposit and closing dates around your funds. Talk with our team.