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dkattir OP t1_ja5qa4f wrote

Reply to comment by Maece in Closing first house in August: help me hedge! by dkattir

While it's true that it's money that I've put aside for down payment:

  1. If everything crashes in 6 months, my home appraisal could come at a lower price and I may have to come up with extra cash at that point. Any profit from a hedge I place will neuter that loss for me.

  2. If it goes up in 6 months, I do have an emergency fund I can lean on to cover my losses in my hedge account.

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Maece t1_ja5r2bt wrote

What are the contingencies that you have with the contract you have signed? Are you willing to walk away if the value goes down? If financing falls through can you even do that?

Timing the market is generally a fool's errand. I get wanting to try to minimize a possible loss, but 6 months is not much of a timeline to make money to deal with an issue you are worrying about.

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dkattir OP t1_ja5s9ha wrote

If financing through the builders lender falls through, I'll get my 10% that I already put in back. I don't expect financing to fall through. There's no other scenario where I'll get my 10% back.

To your second point, well I'm not trying to time the market! All I want to do is hedge against a possible loss.

If everything crashes, I make a profit in my hedge account that I'll use to neuter my ill timed house purchase.

If everything stays the same, I don't incur any additional loss.

If housing market goes up and/or mortgage rates go down, I'll consider I bought a house I wanted for a cheaper cost and/or at a lower rate, than at closing.

I think I covered all scenarios. I'm not trying to time the market. I'm just trying to build the right portfolio that doesn't make me an overall loser in 6 months.

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Maece t1_ja5ttae wrote

So you want upside in both scenarios, which isn't reasonable: no loss if nothing happens, profit in the hedge account if market crashes. If such an investment vehicle existed, why wouldn't I put all my money into it?

If you are concerned about mortgage rate increases, you could see if the lender you are working with would do a rate lock extension. This will cost money to do, but it lets you lock a rate in now and pay for the rate lock to extend beyond the normal 30 or 45 lock. This will likely get pricey to carry it for 6 months.

If you want to protect the house value going down, not much to do here. Good news though, live in the house long enough and you will not be upside down on it.

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dkattir OP t1_ja5vn15 wrote

Thanks for your engagement here, btw!!

>no loss if nothing happens, profit in the hedge account if market crashes. If such an investment vehicle existed, why wouldn't I put all my money into it?

Not quite. If the hedge is perfectly placed, I wouldn't make any profit or loss OVERALL.

>if the lender you are working with would do a rate lock extension.

I did consider this, but this wouldn't be an ideal hedge. I would win only if rates go significantly up. Because of the upfront cost for locking today's rate for 6 months, I would be betting the rate goes up. I feel I can do better than that. I personally feel things may remain the same then in which case I'm essentially losing money for locking the rates.

I certainly aim to stay in the house long term and that's the main reason why I bought in this crazy market.

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