Author Topic: Saving for a house down payment... what to do with the money?  (Read 2863 times)

spanky

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So, like the topic says- the wife and I are tired of throwing money away on rent and would rather put it towards a house that, in theory, is worth something. So starting this month, I've set $1500 aside. Each subsequent month, I'm planning on saving a minimum of $1000 and probably no more than $1500 to add to it.

What do I do with they money while I save it? Leaving it in my checking account is one option- but I can't help but think it could be better employed elsewhere. My timeframe to buy is probably 1-2 years.

matchewed

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Re: Saving for a house down payment... what to do with the money?
« Reply #1 on: May 27, 2014, 07:34:16 PM »
With a time frame like that a savings account is your best bet. You need liquidity and no risk.

legacyoneup

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Re: Saving for a house down payment... what to do with the money?
« Reply #2 on: May 27, 2014, 08:09:36 PM »
You could explore a savings account with an online bank. I use Ally bank and am happy with their service. You will receive a small amount of interest as well. :-)

Nords

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Re: Saving for a house down payment... what to do with the money?
« Reply #3 on: May 27, 2014, 11:16:53 PM »
My timeframe to buy is probably 1-2 years.
Here's some options:
1.  First-time home buyers can withdraw $10K from their Roth IRA free of penalty.
2.  Roth IRA contributions can be withdrawn anytime. 

Neither of those options will actually help your Roth IRA balance compound, and of course the Roth IRA could lose money while you're saving to buy the home.

So perhaps the best option is to avoid chasing yield and put the down-payment savings into a high-yield savings account or a two-year CD.  Your real savings will come from finding a good home at a great price, by negotiating a lower interest rate on the mortgage because of your large down payment, by not having to pay mortgage insurance, and by reassuring the seller that your large down payment will make the sale go through.

Persistence and patience pay off more than savings.  Our second-best home purchase was found after we looked at over 50 places and settled on a fixer-upper.  Our best (by far) home purchase was during the depth of a decade-long housing recession, an absolute trash pit (with good layout and infrastructure), and the result of looking at open houses every month for over three years.

spanky

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Re: Saving for a house down payment... what to do with the money?
« Reply #4 on: June 04, 2014, 07:58:22 PM »
Thanks for the replies. I was hoping there'd be a better way to put that money to work rather than leaving it languish in a savings account- but I'm not surprised to hear that my options are limited.

Sadly, we probably won't be in a position to get the full 20% down payment on our house. I have a pretty good paying job that is generally enjoyable (for a job anyway), but right now I have a clownish 42 mile one-way commute. The wife and I are i agreement that we should live closer to where I work- but housing prices are significantly more expensive there than in the town I'm currently renting in. There, a nice 3 bedroom house could easily cost $180k- meaning I'd need a $36k down payment.. which would probably take about 3 years. Three years of spending the equivalent of an extra working day each week on the road, three years of wasting money on gas, and losing money to rent instead of paying down a mortgage....

I wish I felt like I could take my time on this, but the costs of not moving seem too great.

I DO have a 401k from a previous job with about $60k in it, but I'm not sure of the wisdom(or possibility) of borrowing against that. My current employer provides a state pension, so I haven't done anything with the 401k since leaving the job.
« Last Edit: June 04, 2014, 08:04:52 PM by spanky »

frugaliknowit

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Re: Saving for a house down payment... what to do with the money?
« Reply #5 on: June 05, 2014, 10:25:48 AM »
If you and your wife are detail oriented, disciplined, and careful (this is not for the masses), you could use high yield checking accounts called "kasasa accounts" (https://www.kasasa.com/).  Depending on where you live, it is possible to get +/- 3% by "jumping through hoops" (a certain number of debit card transactions, on-line statements, etc.).  If you do, I suggest using a spreadsheet where you create virtual sub accounts and post to them regularly (checking versus savings) effectively quarantine savings from checking.  You have to be careful not to spend away the extra yield with your required debit card purchases. 

With the amount you need to accumulate, you would probably need 2 kasasa accounts since the maximum amounts are usually 10-30K for the highest yield.  It's a lot of detail work, but it does get a superior yield.  Read the requirements for each account carefully before signing on.