A couple of things to ask yourself: how much time do you have before you are planning on buying? How bad would it be if your investments lose value at around the time you are planning on buying?
If you have no idea but you are thinking of something in the next 2-3 years, then you are probably best served by using an online savings account. Ally is popular; I think some posters here use SmartyPig; but anything that is FDIC insured should fit the bill. The thinking here is that, yes, you are getting a lousy return on that safe investment, just like everybody else. But it's a small amount of money (relative to your FI stash) and a small amount of time so it's more important to make your goal for buying the house.
If, on the other hand, you have no idea how much you need to spend or when you're going to buy, you can stretch a little more for yield. You might consider a balanced fund from Vanguard - consider a tax managed fund (with municipal bonds) if you're over about the 25% tax bracket. Then dial the risk back when your plans for buying become more concrete.
Re: using an IRA. Yes, you can borrow against it for a first time house, but if you are on the MMM/FI plan you probably want to keep that money there and save for your down payment in addition to that.
Re: using REITs. Take a look at the performance of the Vanguard REIT ETF (vnq) over the last 10 years or so before deciding to use that for your house down payment. Keep in mind that it's not tax efficient.