How to Move Up to the Next Level and Buy a Multi-Million Dollar Home

I received an email from a WCIer who is doing great financially but, like most of us, has a rich-person problem to solve. The details are obscured enough to protect the innocent.

“I was hoping to get your thoughts on the best way to do a new home purchase in regard to funding the remaining down payment without selling our current home right away. My spouse and I are looking to upsize our home in the near future. We have a young but growing family. In order to make moving as easy as possible, we would like to first buy our new home, then move in, then list/sell our current home.

We live in the South, and [we] are looking for a home in the range of $2.6 million-$3.2 dmillion. Our current home is valued between $1.1 million-$1.3 million. We owe $520,000 on our current mortgage (3.4% interest rate).

Our household income is $680,000 per year (my spouse stays at home with multiple children). We have no consumer debt, a fully funded emergency fund, and our only debt is the mortgage. We've started 529s and have mid six figures in retirement accounts and low seven figures in a taxable account.

After saving on the side for a couple of years, we have just over $500,000 in a money market fund for our down payment.

If we end up buying a $3.2 million home and need $660,000 for a down payment, how would you recommend funding the remaining ~$150,000?

Obviously, I could sell taxable investments but would have to account for capital gains. But is a margin loan or a bridge loan also something to look into? How do I figure out which would be better as far as fees and interest rates for those vs. the capital gains?

When we sell our current house later, I do plan to pay off any loan or re-invest any sold investments with the equity from that sale. Also planning to put most, if not all, the remaining equity toward the new home mortgage principal. I realize this is a super [rich-person] problem and we will be fine either way but would like to go through the thought experiment anyway.”

A Safe Place to Ask Questions

For most of us, there are few places in our lives where we can openly discuss money. As you can imagine, this WCIer probably isn't going to talk about this at work, with neighbors, or with family members. It is important to us here at WCI to provide a community where these issues can be discussed. Yes, they're rich-person problems, but they are still problems that need to be solved. In this case, there are a lot of options. I can think of seven. Let's go through them.

#1 Contingencies

In most “normal” real estate markets, this sort of issue is simply solved with a contingency in the purchase contract. All that means is that, “I'll buy your house, but not until mine sells.” These are actually pretty normal to see in purchase contracts, and most sellers getting a good price on their house will accept them and just be patient. They know you want to move to the new home and that you are working hard to sell the old one. Frankly, the old one is way easier to sell than the new one, given its much lower price.

However, in the real estate markets we've seen in the last few years, where there are multiple offers for more than the asking price, a contingency like this is going to spell doom for your offer. You really have to analyze where you are in the market. For these WCIers, the average cost of a home in their community is under $400,000. There is not a huge market for homes of $3 million-plus. They're not competing with a lot of other people, so the contingency may work fine.

More information here:

How to Buy a House the Right Way

#2 Sell First

Another approach is to just get your home on the market and get it sold. Most sellers are very happy to move quickly. So, you get your home under contract and go find a new home and put a contingency offer in place, but note that your home is already under contract. It's much more attractive to the seller. If you are OK living somewhere else for a month or two, selling first can also work well. But most of us aren't too excited about going to live with family, using a short-term rental, or going to a hotel. Moving twice just kind of stinks.

#3 Use a Doctor Loan

We've been advertising doctor mortgage lenders here at WCI for many years. Most of these loans require relatively tiny down payments (0%-5%), don't charge PMI, and often don't have significantly higher fees or interest rates. Theoretically, one could get a doctor loan for the new home and then refinance it when the equity comes in from the old loan. Finding a $3 million-plus jumbo doctor loan might be a little more challenging, but it's probably worth a try. Obviously, when you're going to have two loans at once, it's a little harder to qualify for that second one.

More information here:

Physician vs. Conventional Loan

Are Physician Mortgage Loans a Good Idea?

#4 Use a Bridge Loan

This situation is screaming for a bridge loan, which is basically a relatively short-term loan with relatively low fees that you only keep for a few months. This allows you to borrow out your home equity in the old home and use it for a down payment on the new home. This is what we did in 2010 when we bought our current home. We got burned on it because we didn't end up selling that old home until 2015. It was OK in our case. The bridge loan was about the same interest rate as we already had; it just happened to be a 20-year fixed loan, so the payments were a little higher.

#5 401(k) Loans

I'm not a huge fan of 401(k) loans, but they're better than they used to be. Now, you get a little more time to pay them back if you get fired. I still think they can be safely used short-term by wealthy people for purposes like this. The main problem with them is that you can only get a maximum loan of $50,000 or half the 401(k) value, whichever is less. Unless these WCIers have multiple 401(k)s offering loans, this isn't going to solve their problem completely.

#6 Margin Loans

With a seven-figure portfolio and most of a down payment in cash already, these WCIers don't actually need much more money, relatively speaking. A $150,000 margin loan on a seven-figure portfolio is awfully safe from margin calls. Interest rates aren't awesome, though. In late April 2025, these were the interest rates available on a $150,000 loan:

Vanguard 11.25% Fidelity 11.075% Schwab 11.075% Interactive Brokers 5.68%-8.68%

Obviously, one of these things is not like the others, but most of us don't already have an account at Interactive Brokers. These WCIers would need to transfer some assets to Interactive Brokers before borrowing this money.

#7 Sell Assets

Selling assets is also an option. Sometimes it is a great option if you have legacy investments like individual stocks that you'd like to get rid of anyway. The main downside is the capital gains taxes, especially if you're in a situation where you have short-term capital gains. These WCIers probably aren't, and maybe they've been tax-loss harvestinghttps://www.whitecoatinvestor.com/tax-loss-harvesting/ and have a bunch of losses that can cover up the gains without a tax bill. Also note that if you only need $150,000, you could possibly get that with only a $10,000-$20,000 long-term gain by selling only high-basis shares. The tax bill on that isn't too bad, but it's still probably higher than just paying interest for a few months.

More information here:

The 7 Worst Ways to Invest in Real Estate

Comparing Options

Mathematically, if you want to compare options, you'll need to do some figuring using fourth grade math. Calculate the tax bill by writing down the basis of all the taxable assets, figure out if they'll be long-term or short-term capital gains, and subtract any capital losses you've got. You can then compare that cost to the loan fees and a few months of interest that you'll pay on a bridge or margin loan. It's a little imprecise when you don't know how many months of interest you'll pay, so estimate carefully.

Thoughts on Mortgages

I'm not a huge fan of debt or high mortgages. We paid off the 15-year mortgage on our place in seven years and then cash flowed our huge renovation a few years later. But having a reasonable mortgage is hardly a huge financial problem for most WCIers, especially when interest rates are low. And if you have a mortgage for 15-30 years, you'll probably go through a period of time with low interest rates when you can refinance. Nevertheless, I think it's worth considering a few guidelines on how much of a mortgage is OK. I typically use two guidelines.

The first is that you should not have a mortgage of more than 2X your gross income. If this couple has a gross income of $680,000 and wants to buy a $3.2 million house, that would suggest a down payment of $1.84 million. That's going to require all of their home equity and all of their cash, plus most of their taxable account. Basically, their home has become a massive piece of their financial life. I'm not sure I'd recommend that. Can it work out? Absolutely. Will it work out? Probably, but it's nowhere near guaranteed. In a town with an average home price of $400,000, is a $3 million house really so much better than a $1 million house that it's worth taking on this much risk and delaying retirement so many years? Only they can decide.

The second rule is to keep your housing costs to less than 20% of your gross income. That includes the mortgage, property taxes, insurance, and utilities. At our now more moderate interest rates, it doesn't take too big of a mortgage to violate that rule, but 20% of $680,000 is still a six-figure amount: $136,000. Allowing some money for taxes, insurance, and utilities on an $8,000-per-month, 6.5%, 30-year mortgage totals $1.25 million, quite a bit less than what this couple is talking about borrowing by only putting down 20%.

If they must have this house now, maybe they ought to liquidate a lot more of that taxable account to do so, even with a significant capital gains cost.

 

The more wealth you have and resources that are available to you, the more options you have to solve your financial problems. Choose wisely between them.

What do you think? Would you buy this house now? Why or why not? Which option would you choose to solve it? 

The post How to Move Up to the Next Level and Buy a Multi-Million Dollar Home appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.