How Much Equity Should You Roll Over Into Your New Home?

July 9, 2023

How much equity should you roll over into your new home? In this highlight, Bo and Brian discuss upgrading your house and what you should consider when purchasing a new home.

Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.


Here’s the thing, look first of all, let me tell you the common things and then Bo and I can pick apart the other thing. Remember on second homes, you don’t get the grace of doing less than 20 because we don’t want you getting that, because we give you grace on that very first home purchase, three to five percent, just so you can get on the home ownership, home equity side of things. But when you start upgrading your life, we want you to carry that responsibility a little heavier. So that’s why we do ask that you have 20 percent of equity to buy a new house.

Now, what it sounds like with Juan Carlos is that he’s actually going to have more than the 20, so he’s trying to figure out, do you just roll it in? Because do you know how cool it is to be almost debt-free? Sounds awesome. I would say, since the transaction, now look, this is the difference between doing this before the transaction versus after. If you rolled it all in and now you look back and go, ‘Man, maybe I should have kept some of that out because I’m not re-meeting all my other financial goals,’ don’t mishear me. I’m not telling you to go refinance your house. There are too many friction costs with real estate to do that.

But I do want to bring up, because I think the financial order of operations makes this work and makes your homework so much easier. Because if you are in the situation where you’re upgrading your house, you have 20 percent equity, you can very quickly look at your financial situation and see where are you buttoned? If you skipped steps like five, where you didn’t load up your Roth IRA, or you’re not loading up, you never hit the 25 percent and you’re saving an investment strategy, then you might be behind.

And that’s why, look, I hate to do it, but it’s there’s a reason we created this stuff because it’s so valuable to you. Go to learn.moneyguy.com and we have a ‘Know Your Number’ course because I think when you have such a big financial decision, like you have a big chunk of equity that you made in your first house, we know the real estate market had a huge spike in the last few years. It would be really beneficial for you to go ahead and start the measure twice, cut once opportunity ever knowing your number, put in all your data variables to know, are you ahead of the curve or are you behind the curve?

Because look, if you’re way ahead of the curve and you still have this money, and now we know interest rates are much higher on mortgages, where maybe your mortgage is going to be five and a half to even as high as six and a half, it might really make a lot of sense to just roll that stuff in. I’m just trying to make sure we’re giving you the guidance, do the homework of making sure you’re paying respect to the financial order of operations. You’ve done the work of actually filling in the data points to know what you’re saving to reach the goals and the number so that you can be prepared and make the right decision for your family.

The only thing I’ll add to that, because I thought that was darn near a perfect answer, only thing I’ll add to that is make sure that when you’re making this decision, you still stay inside of the affordability parameters. A lot of folks, when they upgrade to their second home, naturally, the cost of the home is more, the interest rate is higher. If doing that and only putting in 20 percent causes your monthly carry to be more than 25 percent of your gross income, I would argue you probably do need to roll more of that equity in, so you can get the monthly cost down to 25 percent.

Make sure that you’re not trying to get cute, only hit the 20, invest those dollars, and now all of a sudden, you have a cash flow problem where you have way too much going to housing. So long as you can satisfy those metrics, I think, just like Brian said, knowing where you are and knowing where you are heading will dictate what decisions you get to make on this transaction.



Most Recent Episodes

What I Learned From Being BROKE!!! (And Why I Wouldn’t Change It)

No one disputes the fact that being broke isn’t great. We want to spread the word that no matter where you came from, you can build wealth. In this episode, Brian and Bo share personal stories about their journey to wealth and lessons they learned along the way....

Top 10 Mind-Blowing Money Stats (2023 Edition)

These 10 money stats will blow your mind! We’ll discuss the unbelievable amount of money Americans save, when most reach millionaire status, and how many Americans carry a credit card balance. Research and resources from this episode: Most Americans don't have enough...

Wealth Multiplier Revealed: The Magic of Compound Interest!

There’s a reason why Albert Einstein called compounding interest the eighth wonder of the world! Do you know exactly how it works and how much your dollars could turn into by retirement? The Money Guy Wealth Multiplier can show anyone just how powerful every dollar...

From $0 to Millionaire in 10 Years (Is it Possible?)

How can you become a millionaire in 10 years or less? We’ll discuss common ways we see millionaires build wealth quickly, including through real estate, entrepreneurship, and the stock market. Discover how real wealth is built and why building wealth quickly may not...

Financial Advisors React to INFURIATING Money Advice on TikTok!

Brian and Bo are BACK to react to some more TERRIBLE financial TikTok advice! Join us as we take a look at some of the worst financial advice on the platform and tell you what to actually focus on in your own financial life. Enjoy the Show? Sign up for the Financial...

Investing Showdown: Dollar Cost Averaging vs. Lump Sum!

It’s a debate as old as time: what’s better, dollar cost averaging or lump sum investing? In this episode, we’ll cover the nuances and pros and cons of both, including in-depth case studies comparing investors at different times. Research and resources from this...

Is Inflation Really Ruining Your Finances? (You Won’t Like the Answer)

Inflation has changed our daily living expenses dramatically over the last few years. While we can’t control all of our expenses, there are many things in your control that can help you become a Financial Mutant and build wealth better than your peers. Enjoy the Show?...

Are $1,000 Car Payments Becoming the New Norm?!

New data shows more Americans than ever have car payments over $1,000. Is this becoming the new normal? How much could having a car payment of $1,000 be costing you for retirement? For more information, check out our Car Buying Checklist!