Author Topic: Pausing on buying a house, what should I do with my down payment?  (Read 2543 times)

MountainTown

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I would say my job is pretty stable but it's also politically sensitive and you rely on a good manager to back you up. Recently I have gotten a manager whom is a 180 from my last, not trustworthy, trashing people on reviews, lying, micro-managing, etc. Needless to say I am not sure how much longer I will last. I may stick around long enough to find another option, transfer, and/or just quit if it doesn't get better.

That being said, we have been shopping for a house for awhile, put out several above asking price bids and been shot down. With how uncomfortable/unhappy I am at my job, I just don't think we can rely on my income anymore. I may want to quit within the next few months and go back to school or pursue a different career(I don't have all this figured out yet).

Question is What should I do with the down payment money? We have been trying to buy a house for almost a year(very competitive market here) and it's definitely been painful watching it accrue 1% interest only rather than race up with the stock market. But we all know that could have gone the other way and then I would have been looking at 30% less down payment right.

Now that I may be pausing for 6 months to a year....to who knows it could be another 3-5 years(if I go back to school)....is it best to put the money in the stock market? Or....since I'm not sure on the exact timeline would a 60/40 fund be a reasonable way to risk a little but not the whole thing?

Thanks for any help. I have posted our life situation below:

Life Situation: IRS filing status Joint, no dependents, live in collegetown in the northwest. Was a low cola but this is changing fast. Used to be you could get a luxurious house for $250,000 but now anything that is in this price range is going to be in a less desireable area, super small, or super crappy.

Gross Salary/Wages: Together we make $115,000 year gross wages. (Me: 77k. Her:38k

Pre-tax deductions/Savings: Currently we are doing 18000 on her deferred comp(maxing out her paychecks). She has an 8% contribution with a 5% match. I have a 5% match with a 5% contribution. Since we could live off of our down payment money I am thinking it may be a good idea to just max everything out and live frugally, and if we needed a few thousand bucks over the year we could always access the down payment money. Thoughts?

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: None

Current expenses: I would estimate we spend about $2000-3000 a month on regular monthly fixed expenses and pleasure expenses. We are frugal on big things like car(one 14 year old car and 825/mo rent) but maybe go out for fancy drinks more than we should :P

Assets: No assets other than a $3000 car. We are shopping for a newer used car now but not really in a hurry. Our car is a 2003 Toyota Corolla.

Liabilities: No loans. No debts.

Specific Question(s): Here is my situation:


Currently we have about $83,000 saved up for a down payment(cash/liquid act) and about $5,5000 in a Roth Account ear marked for emergencies. I also have another 2500 in a deferred comp account from an old job(so it can be cashed out at anytime--we will have to pay taxes).

Our retirement accounts approximate about $120,000.(Mostly traditional tax deferred accounts(TSP, 403b, TIRA,  deferred compensation for wife.). I can break this down more if anyone wants. In the past we have mostly been piling into our down payment savings so we could really get a good down payment. So our retirement savings aren't as strong as they could be. Recently I have ratcheted that up and am fully depositing my wife's paycheck into her deferred comp, while she is also doing 403b of 8%(employer matches 5%), and I am doing 5% into TSP(employer matches 5%) I think we are pretty good savers but maybe not as extreme as some in the FI community.

At this point I anticipate we will have saved about $34,000 in tax-deferred savings by end of year. We definitely could do more if we were less focused on the house.


Other details:

Current rent: 825 a month(our landlord is quite generous and does not raise rent so we are locked into pre-housing boom rates)
Average rent for similar house as we are considering buying: $1400 to $1600

Incomes: Both are generally stable. I don't see huge jumps in income but steady steps. My job is stable but sensitive at times due to political nature of my work.

Future: We plan to have 1-2 kids  starting within the next year. We may wait for my income/job situation to stabilize a little here.



Ocinfo

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #1 on: June 10, 2017, 10:28:06 AM »
So you now work for Trump, sounds hellish...I would figure out the most likely timeline, multiply that by your monthly savings, and then transfer that amount from savings into stock. That way you get your money working for you but minimize risk of it not being there when you need it since you're refilling your bucket. Rinse and repeat if your timeline gets extended.


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MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #2 on: June 10, 2017, 12:15:11 PM »
Hmm OC...I like your strategy except here's one thing. Up until now we haven't maxed out all retirement accounts. So if I am to max out all retirement accounts (18k +18k +18k)....then there probably will not much much/if any going into cash savings. In fact, I'm uncertain we can fully max out retirement accounts without dipping into that 83k a little. It's kind of new to me so I am not sure how much the tax savings will help with the saving...I imagine it will be a substantial lift.

So I guess what I'm saying is while your refilling of the bucket idea is good, ultimately that money will be going into deferred comp, 403b, or TSP....not into a cash account. So I won't have any access to it.

I know facing job uncertainty....it may be good to have a lot of cash but really that was just for the down payment. Even facing unemployment, $83k in cash seems extreme.

I should also mention almost all of my retirement accounts are fully leveraged in a mix of Total Stock Market Index funds or TSP(C,S,I) funds. I have nothing in bond funds. I do have a roth that is in a money market as I had designated that as a emergency account.

Another Reader

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #3 on: June 10, 2017, 12:37:35 PM »
If you have $83k in cash, I would invest the Roth IRA money.  It's not an emergency fund.

I agree you should not buy a house with the level of employment uncertainty you describe.  I would be inclined to use the opportunity to may out the TSP and the other retirement accounts now, even if you end up spending a little of your savings.  The tax deferred and tax-free space available to you now cannot be replaced later.

Until you have more clarity about your employment and the possibility of returning to school, I would be reluctant to invest any of the $83k beyond the IRA's.  If you have a lot of years with the Feds, you may want to transfer instead of quit, unless you are highly motivated to do something else.  You can do a part-time degree or program while you work, and you have the money to pay for it.  You will also need cash for the little ones you want to have.  Don't wait too long on that plan!

MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #4 on: June 10, 2017, 01:12:25 PM »
AR: Thanks. I concur on the Roth...since i have so much in cash anyways, I thought my first priority would be to invest the 5500 I have in Roth.

I think I agree with you that just maxing everything out is best for now. As I do that...I can start to see how much I have to draw on savings(hopefully nothing) and can re-assess. If I am able to max out and not draw on it at all....maybe a case could be made to invest -some- of it.

So I agree with you on the transfer and this is something I am actively looking into. Unfortunately we live in a remote area so local opportunities are extremely limited. I have already requested details and job shadowing so I have gotten the ball rolling on possibly training in other positions. That being said those positions may/may not open up, details may/may not open up....Right now I am aiming for positions from which I could work anywhere as the only option here is to work under the same boss. I agree there are so many bene's working with the Fed that I hate to pass it up. For example, my family mostly lives out of state so it's always been nice to know a Hardship transfer could be possible if they were ill.

Maybe I'm lazy but with the hours I am working and the stress levels, a Part-time degree while working full time just doesn't seem reasonable or mentally healthy....

MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #5 on: June 10, 2017, 01:17:11 PM »
AR and anyone else: If I were to keep the 83k for the most part in cash...would there maybe be an advantage to putting it in a CD? Right now I see that Ally has a no penalty CD in which I could gain about .3 in interest. THat's the lowest hanging fruit.

Otherwise the 5 year CD is 2.25 in interest. The 3 year is only 1.6 so that one I feel is almost not worth it(as it's only .3 more than no penalty CD).

Thoughts on this too?

chasesfish

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #6 on: June 10, 2017, 02:16:39 PM »
Do you have a regular, after-tax brokerage account with Fidelity or Vanguard?  If not, get one and I'd slowly invest the money.

MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #7 on: June 10, 2017, 02:33:18 PM »
I don't Chase...prior to this I was focused on building a cash down payment and/or using up tax deferred space. What you mean by slowly investing the money? Like just putting chunks of the 83k in there every month?

Dicey

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #8 on: June 10, 2017, 03:10:39 PM »
I'm a big fan of Real Estate, but owning an expensive home and having a job you don't like can be a bad combination. In your shoes, I'd keep renting for as long as I could get that rent, assuming your place is no hardship. Keep saving. Don't put everything in one place. Maybe go check out jlcollinsnh's Stock Series?

MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #9 on: June 10, 2017, 03:21:28 PM »
Yes Dicey...I have read his series and love it. I am pretty well diversified amongst Total Stock Market index funds or the equivalent. I have a little amount in International funds.

My biggest problem is the 83k I am sitting on in cash. My thought was to put it in the Total Stock Market index fund. I'm not sure what you meant by putting it all in one place. Were you referring to the TYPE of investment vehicle or...the fund?

Another Reader

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #10 on: June 10, 2017, 03:24:34 PM »
I would deposit some in a high interest on-line savings account and ladder some one and two year CD's.  There is not enough interest difference to justify using 5 year CD's right now.  You can play the game of signing up for them and closing them early if the interest penalty is low.  Suggest you check out savings account, money market, and CD rates at this site:

https://www.depositaccounts.com/

I would only invest taxable money in the equities market if I had a minimum 10 year horizon.  Right now, you have a lot going on and in your shoes I would stay more liquid with most of the cash, except for funding the IRA's and ramping up the work retirement contributions to the maximum.


Dicey

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #11 on: June 10, 2017, 03:39:36 PM »
MT, I kind of meant several things. You can take AR's always pithy advice, for one. You can also buy more than just the US Stock Market. You can decide to buy rental property and be a LL, so you're not tied to one place, as long as it pencils out.

Part of my  success in reaching FI involved doing exactly that when I had a great below-market rent situation. There are worse things than keeping DP money safe from risk and there other ways to buy RE than your own SFH. This might be more of an opportunity than a "problem".

ETA: I just saw your new thread. Probably would have been good to include that information here. Time for an official case study, perhaps?
« Last Edit: June 10, 2017, 03:42:48 PM by Dicey »

MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #12 on: June 10, 2017, 04:15:21 PM »
Sorry which information Dicey? You may have seen an old post pop up with a reply.

Hmm yea I can keep my eye out for a LL situation. We did have a thought with one place that was $300k. It was a a split level...and we thought we could easily convert the lower level into a rental with a small kitchenette. This could bring out payment down from 1500 to about 900 a month(with rental income) and allow us to be a bit more impervious to job loss. We could definitely afford 800 to 1000 in housing on my wife's income so if the other 500 to 700 were covered by a renter that would be sweet.

Anyways, my inclination right now is to wait...I just feel too stressed out to make such a big commitment as to be an LL, let alone convert the space lol.

chasesfish

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #13 on: June 10, 2017, 04:38:40 PM »
I don't Chase...prior to this I was focused on building a cash down payment and/or using up tax deferred space. What you mean by slowly investing the money? Like just putting chunks of the 83k in there every month?

Yes, I would open a regular account at Fidelity and park the savings there.  Invest in what you want (I buy ITOT and IXUS commission free - those are iShares's equivalent funds to everyone favorite at Vanguard) and they send you a checkbook and you can link the account to your current bank's checking account.

Sure, there could be a market pullback, so don't invest it all right away.  The market will go up and it will go down, but has averaged high single digit returns and if you change your mind, just sell.  You can buy in any increment commission free.

I've done this twice and tapped my fidelity account for a downpayment, once when I bought my next house before selling the existing and a second time when I became a renter for a while.m

I picked Fidelity 10 years ago because their technology was slightly better than vanguard at the time, you can probably do nearly the same thing through Vanguard directly, I just like that I get a walk-in branch five miles away for the three times I've needed it

MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #14 on: June 10, 2017, 11:54:50 PM »
H mmm I do like the idea of investing some of it but I also agree with AR that maybe my focus should be on the tax savings(retirement accounts) first. Also ...one of those is deferred comp which in a way is almost like a taxable account as you can pull before retirement age(Though they are taxed at ordinary income levels and must leave job).


Dicey

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #15 on: June 11, 2017, 01:00:43 AM »
Sorry which information Dicey? You may have seen an old post pop up with a reply.
Looks like you started it today. We'll, it's midnight here, so, yesterday.

https://forum.mrmoneymustache.com/ask-a-mustachian/can't-let-go-of-this-active-fund/msg1584504/?topicseen#new

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #16 on: June 11, 2017, 05:13:15 AM »
You are also talking about having kids.  That changes your spending and possibly your family income.  Is your wife going to want to stay home or go part time?  Even if she doesn't, kids are expensive.  Some "what if" planning may help you determine how much cash you will need in the next three or four years.

The 457 plan can be very helpful as a bridge to pensions and other retirement funds if you retire early.  If it's a government plan, I would max that out without a second thought.  Some caution is advisable if her employer is a private entity, as the plan assets belong to the entity and are not held in trust for the employee.  If her employer goes bankrupt, the 457 plan assets may be used to satisfy creditor claims.  I would be very cautious if there is any evidence her employer is financially weak.


MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #17 on: June 11, 2017, 09:02:51 AM »
Dicey: Hmmm ya sorry I didn't think the International fund was too relevant to this topic. Sorry--didn't mean to spread out my posts lol. I think I figured that was more of a minor tweak needed where this was a bigger decision. Feel free to comment on it here/there! I am open to feedback.

AR:You are right. That's a big "what if." I don't think she needs to stay home but she would love to do Part time. Luckily she does have some paid parental leave...but that will only get us so far. We had always thought we could swing her going on FLMA for 1-2 years while I worked....but yea now that leaves more unknowns.

I guess we are still in kind of a wait and see mode in terms of kids. She is not in a terrible rush but would like to soon. I know that I can't wait for the perfect situation but I guess I would rather not be unemployed.

It is a government plan...thanks. Yea I have been reading up a lot on people who use capital gain investments/dividends to get them through their "early" phase of FI. In my mind, a 457 is comparable and perhaps superior to that plan in that you can get the deferred tax treatment. Then again, it is eventually taxed at ordinary income. I don't think there is much concern about losing the money. I believe there was a new law passed that governmental entities must put it in trust?

I still would like to build taxable investments but like I said....in my mind the 457 was superior and frankly I don't think we can do both with our current budget.

Another Reader

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #18 on: June 11, 2017, 09:21:00 AM »
Yes, 457 plans offered by government entities are held in trust for the participants and are not subject to creditor claims in a bankruptcy of the entity.  That was not always the case.  When I took my first "career" type job, it was with a local government agency.  I did NOT use the 457 plan, because at that time, the trust arrangement did not exist and the plan assets were the assets of the agency.  Cost me a lot of money in the long run, but the lack of a guarantee and low quality investments convinced me not to invest.  I bought a house in Silly Valley instead, and that was worth 250 percent of what I paid when I traded up five years later, so maybe not such a bad choice for me.

I can't recall how old you and your wife are, but fertility issues can creep up on you, especially as she gets into her thirties.  Not buying a house because the market got away from you is one thing, but missing the opportunity to have kids is quite another.  Something to think about as you plan the near term future.

MountainTown

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #19 on: June 11, 2017, 09:32:05 AM »
AR: Thanks for the tips again....

Yea she is turning 30 this December so in her mind her "clock is ticking."

So I totally agree with you on the kids thing...I mean I don't want to let life pass me by ....but how can I allay my worries/concerns about having some financial stability when having kids? I mean it's just scary now. Should I just rely on knowing that I have 80k cash?

Another Reader

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Re: Pausing on buying a house, what should I do with my down payment?
« Reply #20 on: June 11, 2017, 02:39:34 PM »
Yes!

Seriously, you can afford the rent on your current place on her income alone.  My guess is you could find something that would pay more than that and between the two of you, even after some extended maternity leave, you would cover your expenses and still save.
« Last Edit: June 11, 2017, 02:43:58 PM by Another Reader »