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Understanding RSUs and Their Value
Restricted Stock Units (RSUs) are a form of compensation that many tech and finance professionals receive. They represent shares in your company, but unlike regular stock, they typically vest over time, meaning you earn the right to own them after meeting certain service or performance milestones. RSUs can become a significant source of wealth, especially if your company’s stock performs well, making them a powerful asset when considering a luxury home purchase.
Key Features of RSUs:
- Deferred Compensation: RSUs are granted as part of your total compensation package but only become yours after a vesting period.
- Tax Implications: RSUs are taxed as ordinary income upon vesting, based on the fair market value of the shares.
- Potential for Growth: If your company stock rises, your RSUs can significantly appreciate, increasing your buying power.
Strategies for Using RSUs to Buy a Luxury Home
1. Use RSUs as a Down Payment
One common strategy is to sell a portion of your vested RSUs to fund the down payment. Given that luxury homes often require larger down payments to secure favorable terms, this can be a strategic use of your assets. Before selling, consider the potential tax hit and timing your sale when your stock is performing well.
Tip: Use a mortgage affordability calculator to understand how much house you can afford based on your expected proceeds from RSU sales. Check here.
2. Secure a Jumbo or Non-QM Loan
For many luxury buyers, a conventional loan won’t suffice. Instead, you may need a Jumbo Loan or a Non-Qualified Mortgage (Non-QM) Loan, which offers more flexibility in income documentation and loan size. For instance, if your RSUs form a significant portion of your income, a Non-QM lender might consider this in your favor.
- Explore Your Jumbo Loan Options – Learn more
- Non-QM Loans for Complex Incomes – Read about your options
3. Pledge RSUs as Collateral
Some lenders may allow you to use your RSUs as collateral for a mortgage or to secure a bridge loan, reducing the need for a traditional down payment. This can be an attractive option if you expect your RSUs to continue appreciating.
4. Plan for Tax Efficiency
When selling RSUs, you’ll incur tax liabilities based on their fair market value at vesting. Consider strategies like tax-loss harvesting or using tax-advantaged accounts to offset these gains. Consulting a tax advisor can help you optimize your overall financial picture.
Additional Tips for Success
- Time Your Sale Wisely: Avoid selling RSUs during market dips if possible.
- Diversify Your Holdings: Don’t over-rely on your employer’s stock for your financial future.
- Work with a Mortgage Advisor: Secure the best rates and terms for your luxury home.
FAQs
Can I use RSUs as a down payment directly?
Typically, you’ll need to sell the shares first, as most lenders require cash for down payments. However, some high-net-worth programs might consider your RSUs as part of your net worth.
How do RSUs affect my DTI ratio?
If you use RSU income to qualify for a mortgage, it can boost your borrowing power, but it may also increase your debt-to-income ratio, potentially impacting loan approval.
Are there risks in using RSUs for home buying?
Yes, including stock price volatility, tax impacts, and liquidity challenges if your shares are heavily concentrated in one company.
Read Next
- Understanding Jumbo Loans
- What is a Non-QM Loan?
- Choosing the Right Loan for Your Dream Home
Ready to explore your options? Find the perfect lender match for your luxury home purchase here.
Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
