Case study - how to save for a house down payment?

[Imustacheyouaquestion]

[Editing to remove financial details]:

Should I temporarily decrease my HSA and TSP contributions so I will have more cash on hand to make a larger down payment and cover closing costs?

[JLee]

Now you know why I don't go out for burgers and beers. It's too damned expensive!

If you're unwilling to adjust your spending, leave your HSA as the last contribution that you modify. HSA contributions are pre-FICA, unlike other retirement accounts.

[ShoulderThingThatGoesUp]

You spend $3000 a year on restaurants (600 on cafeteria/coffee shops, $2400 on restaurants/bars), $2000 a year on clothing, $1100 a year on "misc other", and you have a gym membership. You want to know how to save more. The answer is staring you in the face. Stop doing those things.

Also, a $400,000 house in a LCOL area is a ridiculous house. What is this target city?

[nereo]

Specific Question(s):

I know the budget above is not "bare bones" and there is some fat left to trim. ... $2400 on restaurants sounds ridiculous, but that's literally the cost of going out for burgers and beers a couple nights per week ... not looking to increase my savings percentage currently, although I know there are opportunities for this. I'm really looking for advice on how to apportion my current savings.

Going out "a couple nights per week" for burgers and beers is not a good idea even independent of the cost.  Also, you say you aren't looking to increase your savings, but ask the question "how to save for a house down payment".  All the financial gymnastics of diverting savings and taking a loan won't address your question.

I have $28k saved up for the house downpayment ($6k savings, $9k brokerage, $13k in Roth IRA), ... we'll be combining finances when we get married.

Coworkers have suggested I could withdraw up to $10k in Roth IRA earnings or take a TSP loan to cover closing costs if necessary....

You are talking about robbing future self to pay current self.  Not a good strategy.  Also, you've mentioned several times that GF is not contributing because of her SL, yet you will be combining finances.  HOw big are her loans and how many more years will it take to pay them off?

Should I temporarily decrease my HSA and TSP contributions so I will have more cash on hand to make a larger down payment and cover closing costs?

No, no, and no.  If you don't have the cash on hand to make a 20% down payment you should not forego HSA and TSP contributions in order to get there.  Again, you'd be robbing future self to help current self, and that never ends well. What you are considering is a downpayment of ≤$65k (including cash already in hand but excluding the roth).  That's ~68% of your personal income or about 40% of your combined income.  If you can't come up with that within 2 years there's a problem.  Either you need to consider much cheaper housing options ($400k is a LOT in most areas) and/or start spending less.

How great of a SL debt does your GF have that she can't contribute financially to the down payment, even though you are planning on merging finances after marriage? 

[Imustacheyouaquestion]

Hmm, I should probably clarify that the target city is a "medium" cost of living city on the east coast, lower than the DC area, but not low cost compared to the entire US. I've looked at 2-3BR houses ranging from $250-$400k online. It is true that coming from DC, where a newly-renovated rowhouse with luxury finishes but suboptimal construction in a questionable neighborhood sells for $700k+, may have distorted my opinion of reasonable prices.

Our jobs don't exist everywhere (my working remotely might!), so we're looking for a sweet spot where we can make relatively high salaries (close to what we make now) but live in a house with a yard instead of a tiny apartment.

I put $1100 for Misc because that's right around the 2.5% specified in the "how to make a case study" wiki as the level where breaking down further spending is unnecessary detail. I am definitely aware that these expenses are not as low as possible, and my question is not exactly "how do I save more?" but "is it ever appropriate to decrease retirement savings to buy a house?" For me, the tradeoff between a gym membership ($150/month) and waiting an extra year to buy a house falls clearly on the side of waiting. The last forum post I found on this same topic seemed to be from 2012 so I'm interested in hearing from others.

[neo von retorch]

Here is what I believe would help you:

* Get married and combine your finances before choosing a buying a house. You'll be in a strong, stable financial situation and have all the marriage, name changes, and finances worked out before making a major purchasing decision.
* Get your career closer to settled. Buying a house before you've been at a job long enough to know if it's a long-term position could leave you stuck with a job (or job-hopping) that is less than ideal.
* Get your "reasonable spending" ironed out first. You're buying a house because you want a yard and other upgrades. You're likely to spend more on the house then you are on renting. You're going to want to buy things once you buy the house. Get your spending in check - it doesn't have to be "bare bones" but it should represent the attitude "I'm willing to work, save, wait, and make hard decisions about where my money is going." Then you should be a lot more ready for home buying.

With all that out of the way, you should be in a position where the question is no longer "should I sacrifice all of my retirement goals so I can afford a tiny fraction of the recommended down payment on an expensive home?" It will be "is this definitely where I want to live for the next 10+ years?" "Are the homes I'm looking at smart choices for frugal living that will help me reach my retirement goals?"

[nereo]

...
I put $1100 for Misc because that's right around the 2.5% specified in the "how to make a case study" wiki as the level where breaking down further spending is unnecessary detail. I am definitely aware that these expenses are not as low as possible, and my question is not exactly "how do I save more?" but "is it ever appropriate to decrease retirement savings to buy a house?" For me, the tradeoff between a gym membership ($150/month) and waiting an extra year to buy a house falls clearly on the side of waiting. The last forum post I found on this same topic seemed to be from 2012 so I'm interested in hearing from others.

I understand what you mean about how DC can warp the idea of what a LCOL area really is.  I lived there, and I also lived in SF.
Above you said that you clearly prefer waiting to cutting expenses - and that's going to be your answer.  If you're not willing to optimize your spending it will take you longer to reach a down payment.

Regarding your question: "Is it ever appropriate to decrease retirement savings to buy a house" - the answer is (almost always) no.  A house is rarely a great investment, and certainly not compared to tax-advantaged accounts over the long term.  Hopefully you've done some rent vs. buy scenarios (click link for a great calculator) and have decided that buying is for you. 

[Imustacheyouaquestion]

Just trying to make sure I understand your argument here - in your hierarchy of savings, nobody should set aside money for a house down payment until they are maxing a TSP and HSA?

Edit: you just answered this question above. Thank you!

[Imustacheyouaquestion]

Here is what I believe would help you:

* Get married and combine your finances before choosing a buying a house. You'll be in a strong, stable financial situation and have all the marriage, name changes, and finances worked out before making a major purchasing decision.
* Get your career closer to settled. Buying a house before you've been at a job long enough to know if it's a long-term position could leave you stuck with a job (or job-hopping) that is less than ideal.
* Get your "reasonable spending" ironed out first. You're buying a house because you want a yard and other upgrades. You're likely to spend more on the house then you are on renting. You're going to want to buy things once you buy the house. Get your spending in check - it doesn't have to be "bare bones" but it should represent the attitude "I'm willing to work, save, wait, and make hard decisions about where my money is going." Then you should be a lot more ready for home buying.

With all that out of the way, you should be in a position where the question is no longer "should I sacrifice all of my retirement goals so I can afford a tiny fraction of the recommended down payment on an expensive home?" It will be "is this definitely where I want to live for the next 10+ years?" "Are the homes I'm looking at smart choices for frugal living that will help me reach my retirement goals?"

Thanks, these are all good suggestions. To be clear though, I wasn't advocating sacrificing all retirement goals, just dialing back on TSP contributions down to the 5% match for a few months to increase cash on hand for closing costs, then making it up with extra contributions later in the year.

[nereo]

Here is what I believe would help you:

* Get married and combine your finances before choosing a buying a house. You'll be in a strong, stable financial situation and have all the marriage, name changes, and finances worked out before making a major purchasing decision.
* Get your career closer to settled. Buying a house before you've been at a job long enough to know if it's a long-term position could leave you stuck with a job (or job-hopping) that is less than ideal.
* Get your "reasonable spending" ironed out first. You're buying a house because you want a yard and other upgrades. You're likely to spend more on the house then you are on renting. You're going to want to buy things once you buy the house. Get your spending in check - it doesn't have to be "bare bones" but it should represent the attitude "I'm willing to work, save, wait, and make hard decisions about where my money is going." Then you should be a lot more ready for home buying.

With all that out of the way, you should be in a position where the question is no longer "should I sacrifice all of my retirement goals so I can afford a tiny fraction of the recommended down payment on an expensive home?" It will be "is this definitely where I want to live for the next 10+ years?" "Are the homes I'm looking at smart choices for frugal living that will help me reach my retirement goals?"

Thanks, these are all good suggestions. To be clear though, I wasn't advocating sacrificing all retirement goals, just dialing back on TSP contributions down to the 5% match for a few months to increase cash on hand for closing costs, then making it up with extra contributions later in the year.

Alright, that's certainly more understandable.  I had written out a longer reply by the internet 'ate' it (503blahblahblah).
If you believe that you can make up your contributions later in the year, and contribute at least enough to get your company match then go ahead. I was worried that you were going to forgo all retirement contribtuions for several years in order to amass a down payment. 

[Imustacheyouaquestion]

Also, thanks for all of the honest facepunches on expenses. As someone who saves 55% of my income after tax, drives a 15 year old car, bikes to work, has no debt, and cooks 90% of my meals at home, I tend to think I am frugal relative to many of my DINK peers/neighbors who order dinner from UberEats, have credit card debt, don't save anything for retirement, go on international vacations, drive new cars, etc. The reality is that I save relatively easily due to high income and not due to major sacrifices (yet).

[Rewdoalb]

Just chiming in to second the tip regarding the lifestyle change that comes with home ownership. I figured going from $510 rent to a $260 mortgage would outweigh the difference but ownership leads to lots of changes. Get your expenses sorted out first (and yea, get married if you're owning a house together!) You're doing great though.

[MDM]

I am maxing out my TSP, with plans to max my HSA contributions during my next pay raise, but I'm wondering if dialing that back a bit so I can finally buy a house makes sense.

In short, "no."

It might be "yes" if you would ask this question after you have been married for at least a year, and have lived for at least a year in a city in which you expect to spend another ~5 years or more.  Then "finally" would be more appropriate.

At this point you have marriage, moving, etc., to consume your time.  To that you could add the stress of picking the right house in the right location, maintaining it, etc., but why...?

In your tax bracket, max-ing the TSP, HSA, whatever the phase-out allows for a tIRA and then the rest into a Roth IRA, makes a lot of sense.  Per your OP (BTW, well written!) you would still have ~$10K/yr left over to put into taxable investments - even more if you rein in some of that (e.g., $2K/yr for clothes?!) spending.

Doing a case study on your combined finances also seems a good idea, regardless of whether you post it here or simply discuss it between the two of you.

And finally...good luck!

[Suze456]

I wish someone had facepunched me when we were DINK. Yes, we saved, we had no debt...but all the money casually spent on eating out/clothes...it is so much easier to save when you have no kids. If you are planning on kids, think of the costs of childcare/losing one income down the road...I would love to have saved more of that fat when it wasn't painful. BTW I don't regret any of the holidays :)

[boarder42]

vacations can be next to free with the right travel hacking plan.

[nereo]

I wish someone had facepunched me when we were DINK. Yes, we saved, we had no debt...but all the money casually spent on eating out/clothes...it is so much easier to save when you have no kids. If you are planning on kids, think of the costs of childcare/losing one income down the road...I would love to have saved more of that fat when it wasn't painful. BTW I don't regret any of the holidays :)

So far my impression is that it always feels like it was easier to save "before". best thing you can do is save whatever you can now, and let compounding do its magic

[Suze456]

True, and now I still have my health etc (still facepunch myself for spending too much in my 20's.)

[nereo]

True, and now I still have my health etc (still facepunch myself for spending too much in my 20's.)

My biggest financial regrets in my 30s are all things I thought I "needed" in my 20s.  I'm sure when I"m in my 40s I'll think similarly about my 30s.  Probably why before I purchase anything I ask myself "is this really going to make my life better?"