Author Topic: Saving/Investing For House Downpayment  (Read 4769 times)

jja620

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Saving/Investing For House Downpayment
« on: July 27, 2014, 12:06:52 AM »
Hey everyone,

I'm new to the site, but have read a lot and am very excited to learn from this site.  I'm 22 just graduated college, and am working for one of the Big 4 accounting firms. I'm really interested in saving as much money as possible to use as a down payment for a house.  However the idea of that money sitting in my savings account and earning little to zero interest, does not sit well with me. 

Could anyone recommend safe investments with better returns, or advice on what I should do with my savings?
Thanks in advance

former player

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Re: Saving/Investing For House Downpayment
« Reply #1 on: July 27, 2014, 01:55:24 AM »
Welcome to the site and congratulations on the job.

"Safe" usually isn't earning much in the way of interest at the moment.  If you can save regular amounts and/or lock the cash away for a year or two you may get a bit more, and internet accounts (from reputable financial institutions) tend to pay slightly more than over the counter.  If you have the possibility of tax-free savings, go for that as well.  Even with all of that, chances are you will be doing well just to cover inflation.

This may start to change in the next year as economies pick up, but it depends a bit where you are.  Do your research and keep an eye out for new interest rates being offered.  But remember, if something looks too good to be true, then it is.  You can't beat the market without taking risks, so if you want safe, slow and steady is the only option.

clifp

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Re: Saving/Investing For House Downpayment
« Reply #2 on: July 27, 2014, 04:05:29 AM »
If you are saving for house payment, you should look at contributing to either a traditional IRA, or Roth IRA.   Up to $10,000 can be withdrawn from an IRA with no penalty for use as a down payment for your first home purchases.  You should also look at open up a Roth IRA, because contribution from them can be withdrawn penalty free.

Kriegsspiel

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Re: Saving/Investing For House Downpayment
« Reply #3 on: July 27, 2014, 06:45:22 AM »
I am keeping mine in a savings account, earning almost nothing, because I'd rather NOT LOSE it due to investments tanking. I'm planning on buying some property in the next year though.

kudy

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Re: Saving/Investing For House Downpayment
« Reply #4 on: July 27, 2014, 11:28:32 AM »
I've been stashing down payment money for my first investment property in a REIT... my (possibly flawed) thinking is that the returns/value on a REIT will be similar to the values in the housing market, so it's a natural place to save for a real estate purchase. Housing downturn would cause my REIT holdings to lose value, but I would also be paying less for property. Over the past few years, the account has done nothing but gain in value, while houses are now selling quickly and for more than asking price.

myDogIsFI

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Re: Saving/Investing For House Downpayment
« Reply #5 on: July 27, 2014, 04:03:11 PM »
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.

frugaliknowit

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Re: Saving/Investing For House Downpayment
« Reply #6 on: July 27, 2014, 04:12:25 PM »
If you are very disciplined and careful and keep meticulous records (you're an accountant, right) you can research "kasasa" accounts at kasasa.com.  These are rewards checking accounts with lots of hoops (debit card purchases, e-statements only, , maximum balances, etc., etc.).  What I do is "layer" my checking and savings (via a spreadsheet) so that my savings can earn "kasasa rates" (I have accounts with 2.50 and 3.05% yields).  This is not for the masses, but if you don't mind the work, it might pay off.

As for using a roth, I think it is a bad idea.  Retirement savings is more important than owning a home and should be separate.