How does saving for a down payment fit into the investment order?

[remizidae]

It's a general question--shouldn't this be addressed in the investment order?--and also a specific one.

I have an adequate emergency fund. After maxing out my 401k and HSA and making minimum student loan payments, should extra funds go to extra debt payments (highest interest rate is 5.96%) or towards saving for a down payment on our first house?

Right now I have $10k towards a down payment, and I estimate that closing costs plus 10% down payment on an inexpensive house would be $40k. Would you try to work towards that number (or some other number) or focus on paying down debt and get a mortgage with low/no down payment?

(I know the Dave Ramsey school of thought might tell me to pay off all debt before buying a house, but--not gonna happen.)

[FIREball567]

For me, I am saving up and maxing out all my retirement accounts. Instead of putting extras in a taxable account, I put it in a CD to fund my down payment.


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[Boofinator]

I'm not a fan of PMI, since it adds an effective few percent to the mortgage interest for that extra money borrowed. That being said, it might make sense in your case. Since you don't appear to be in the market for a new house in the immediate future, the opportunity cost of the money sitting in a low interest bearing account will probably be a worse choice than receiving 6% now by paying off the loan and paying PMI. Another option, and a bit of a gamble, would be to invest the down  payment money in equities. Irecommend comparing the numbers on a spreadsheet to get the long term results.

[MDM]

It's a general question--shouldn't this be addressed in the investment order?

It's there:

It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end.

In other words, it depends on how much you value house ownership vs. retirement savings.

[Raenia]

There's no clear answer on this - some count it as a spending line-item, others count it as a saving line-item at different levels in the investment order.  All depends how your rent vs buy market is in your particular location, and how much you value home ownership generally.

For myself, I'm diverting what would have been post-tax savings in a brokerage account into my downpayment fund, after maxing my 401k and IRA.  So, between steps #5 and #6 (though you could also call it between #7 and #8, since neither 6 or 7 applies to me).  We have no debts, our emergency fund is adequate, and our HSA is maxed through my husband's paycheck.

However, for someone who doesn't make enough to fill all the tax-advantaged space, I think it would be fair to move down payment savings up a few rungs.  All depends on your own specific situation and values.