Author Topic: Smartest way to save for your downpayment?  (Read 5682 times)

janpieterz

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Smartest way to save for your downpayment?
« on: December 23, 2014, 04:17:31 PM »
Me and my partner already have our nice moustaches but just moved in together. Of course the talks and plans go around and we're sure we're going to buy a house in the near future (think 1-3 years). Currently we are renting and we can save a decent amount of money, but we're unsure about how to save in the smartest way for our downpayment. Simply putting it on a savings account will work of course, but seems to be a little bit wasting the possibilities of letting them work, while investing in stocks/bonds seems to be way to long term.
Does someone have any sweet ideas to make those dollars (euros actually) work for us instead of waiting around?

slugline

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Re: Smartest way to save for your downpayment?
« Reply #1 on: December 23, 2014, 05:50:39 PM »
I used a fund that invested in short-term corporate bonds -- ticker VFSTX if you have access to Vanguard funds. If your purchase horizon is only a few years, you probably don't have tolerance for something with a lot of volatility.

wtjbatman

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Re: Smartest way to save for your downpayment?
« Reply #2 on: December 23, 2014, 10:23:59 PM »
"High" Yield Savings Account -> CDs -> Short-term Bond Fund (like VFSTX slugline mentioned)

I wouldn't invest in anything else with my house down payment money.

janpieterz

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Re: Smartest way to save for your downpayment?
« Reply #3 on: December 29, 2014, 02:50:43 PM »
Cheers, that's what I was expecting.

trailrated

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Re: Smartest way to save for your downpayment?
« Reply #4 on: December 29, 2014, 03:17:39 PM »
I want to piggy back off of this, and sorry if it gets people off topic but where I live, for a decent house we are talking roughly 750k (that will not buy a mansion in the Bay Area like it would in most other parts of the U.S. and I am talking long term once I am in. I just started to put money aside to build up for a downpayment and if I do not get married within the time frame and am putting away 20k a year just for the house downpayment we are still talking 7.5 years to build up 150k to avoid PMI. HOLY FUCK THAT IS A LONG TIME. Sorry for the rant, and no I will not consider moving because of my son. Not because he demands it at 1.5 years old but his mother lives here too and I am unwilling to move far away.

slugline

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Re: Smartest way to save for your downpayment?
« Reply #5 on: December 29, 2014, 03:41:55 PM »
I guess if your time horizon is 7+ years you could invest more aggressively, but I'm not sure I'd be comfortable enough to put it in all in stock/equities either. I find myself a bit unsure of how to handle savings goals in that intermediate three-to-ten-years-away range.

Those are some eye-popping valuations in SF. Every big city has a ritzy neighborhood, but I guess we're finding out what  happens when the whole city has ritzy valuations? Your projected down payment would have obliterated the starting balance on my mortgage here on the Gulf Coast!

waltworks

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Re: Smartest way to save for your downpayment?
« Reply #6 on: December 29, 2014, 03:58:24 PM »
If it will take 7+ years to save a 20% down payment, you can't afford the house anyway, so why worry about it? Either make more money, keep renting, or move. Buying a $750k house ain't realistic if you can only put away $20k/year. Heck, if it just appreciates with inflation @ 2-3% it'll be up closer to $900k by then and you still won't have your 20%...

W

I want to piggy back off of this, and sorry if it gets people off topic but where I live, for a decent house we are talking roughly 750k (that will not buy a mansion in the Bay Area like it would in most other parts of the U.S. and I am talking long term once I am in. I just started to put money aside to build up for a downpayment and if I do not get married within the time frame and am putting away 20k a year just for the house downpayment we are still talking 7.5 years to build up 150k to avoid PMI. HOLY FUCK THAT IS A LONG TIME. Sorry for the rant, and no I will not consider moving because of my son. Not because he demands it at 1.5 years old but his mother lives here too and I am unwilling to move far away.

4alpacas

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Re: Smartest way to save for your downpayment?
« Reply #7 on: December 29, 2014, 04:32:58 PM »
If it will take 7+ years to save a 20% down payment, you can't afford the house anyway, so why worry about it? Either make more money, keep renting, or move. Buying a $750k house ain't realistic if you can only put away $20k/year. Heck, if it just appreciates with inflation @ 2-3% it'll be up closer to $900k by then and you still won't have your 20%...

W

I want to piggy back off of this, and sorry if it gets people off topic but where I live, for a decent house we are talking roughly 750k (that will not buy a mansion in the Bay Area like it would in most other parts of the U.S. and I am talking long term once I am in. I just started to put money aside to build up for a downpayment and if I do not get married within the time frame and am putting away 20k a year just for the house downpayment we are still talking 7.5 years to build up 150k to avoid PMI. HOLY FUCK THAT IS A LONG TIME. Sorry for the rant, and no I will not consider moving because of my son. Not because he demands it at 1.5 years old but his mother lives here too and I am unwilling to move far away.
How much would you say you need to be able to save per year in order to be able to afford a $750k house?

trailrated

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Re: Smartest way to save for your downpayment?
« Reply #8 on: December 29, 2014, 04:36:52 PM »
If it will take 7+ years to save a 20% down payment, you can't afford the house anyway, so why worry about it? Either make more money, keep renting, or move. Buying a $750k house ain't realistic if you can only put away $20k/year. Heck, if it just appreciates with inflation @ 2-3% it'll be up closer to $900k by then and you still won't have your 20%...

W

I want to piggy back off of this, and sorry if it gets people off topic but where I live, for a decent house we are talking roughly 750k (that will not buy a mansion in the Bay Area like it would in most other parts of the U.S. and I am talking long term once I am in. I just started to put money aside to build up for a downpayment and if I do not get married within the time frame and am putting away 20k a year just for the house downpayment we are still talking 7.5 years to build up 150k to avoid PMI. HOLY FUCK THAT IS A LONG TIME. Sorry for the rant, and no I will not consider moving because of my son. Not because he demands it at 1.5 years old but his mother lives here too and I am unwilling to move far away.

I meant saving 20k per year just for the downpayment, I am also maxing out retirement accounts and putting money away in a 529, etc. But as the next person said, what would you say is more realistic on top of that? once I was in the house I could put rent money...roughly another 2k/month towards the house as well as the 20k I was used to setting aside for the house before purchasing it.

NICE!

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Re: Smartest way to save for your downpayment?
« Reply #9 on: December 29, 2014, 04:56:20 PM »
If it is going to take awhile anyway, and if you don't mind missing your target by a few years, why not just roll with your standard asset allocation? I'm going 95/5 like I do with everything else. If I'm not there when I want to buy, I'll just wait a little longer. If I get there earlier, great.

BayIslandSaver

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Re: Smartest way to save for your downpayment?
« Reply #10 on: December 29, 2014, 05:46:24 PM »
janpieterz,  this is exactly why I decided to invest in property out of state and just continue renting.

Even at 750K you're looking at an entry level SFH in a good neighborhood...this makes me sad );
2010-2011 was the time to buy.  I had no money then...had to pay off some student loans first, and just started to get some positive traction.

I feel your pain.

waltworks

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Re: Smartest way to save for your downpayment?
« Reply #11 on: December 30, 2014, 07:45:06 AM »
4-5x income is usually the absolute upper limit for affordability.

W

If it will take 7+ years to save a 20% down payment, you can't afford the house anyway, so why worry about it? Either make more money, keep renting, or move. Buying a $750k house ain't realistic if you can only put away $20k/year. Heck, if it just appreciates with inflation @ 2-3% it'll be up closer to $900k by then and you still won't have your 20%...

W

I want to piggy back off of this, and sorry if it gets people off topic but where I live, for a decent house we are talking roughly 750k (that will not buy a mansion in the Bay Area like it would in most other parts of the U.S. and I am talking long term once I am in. I just started to put money aside to build up for a downpayment and if I do not get married within the time frame and am putting away 20k a year just for the house downpayment we are still talking 7.5 years to build up 150k to avoid PMI. HOLY FUCK THAT IS A LONG TIME. Sorry for the rant, and no I will not consider moving because of my son. Not because he demands it at 1.5 years old but his mother lives here too and I am unwilling to move far away.

I meant saving 20k per year just for the downpayment, I am also maxing out retirement accounts and putting money away in a 529, etc. But as the next person said, what would you say is more realistic on top of that? once I was in the house I could put rent money...roughly another 2k/month towards the house as well as the 20k I was used to setting aside for the house before purchasing it.

TerriM

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Re: Smartest way to save for your downpayment?
« Reply #12 on: December 30, 2014, 08:15:55 AM »
I want to piggy back off of this, and sorry if it gets people off topic but where I live, for a decent house we are talking roughly 750k (that will not buy a mansion in the Bay Area like it would in most other parts of the U.S. and I am talking long term once I am in. I just started to put money aside to build up for a downpayment and if I do not get married within the time frame and am putting away 20k a year just for the house downpayment we are still talking 7.5 years to build up 150k to avoid PMI. HOLY FUCK THAT IS A LONG TIME. Sorry for the rant, and no I will not consider moving because of my son. Not because he demands it at 1.5 years old but his mother lives here too and I am unwilling to move far away.

trailrated, I feel your pain.  But hang in there.  I think we will have a downturn in 2-3 years.  Save aggressively and see what you can do when it happens.  Maybe the house you want will be $500K then.

FarmerPete

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Re: Smartest way to save for your downpayment?
« Reply #13 on: December 30, 2014, 08:16:16 AM »
If you're renting for 2k a month, why buy a house?  A $600k mortgage at 3.75% is still $2,778.69 a month payment.  It'll probably be over 5% by the time you buy it, which is $3,220.93 a month.  That's before taxes, insurance, & upkeep.  A conservative number for those would be 1.25% for taxes, 2% for upkeep, and I'll completely guess 200 a month for insurance.  That comes out to an additional $2231.25 a month in costs.  So your house is going to cost $5452.18 a month.  You're currently paying 24k in rent and 20k in savings for a grand total of $44k or $3666 a month.  You either need to start saving more or keep on renting.  Invest the 20k a year in stocks.  If the market is down, don't buy the house.

Really, I would recommend you move or keep renting.  If your kids mom is nearby, you could buy yourself and her a house in the suburbs for cheaper than this $750k house you're coming up with.

4alpacas

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Re: Smartest way to save for your downpayment?
« Reply #14 on: December 30, 2014, 10:31:41 AM »
Quote
4-5x income is usually the absolute upper limit for affordability.

W
Pretax or post-tax income?  Before or after 401k contributions?

waltworks

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Re: Smartest way to save for your downpayment?
« Reply #15 on: December 30, 2014, 05:36:06 PM »
I'd use pretax but it would be a good idea to run actual numbers. At $150k gross income, that $600k mortgage is going to run something like $3500/mo with taxes and insurance, without even accounting for maintenance. So $42k/year, when your net is something like $120k. Doable, but far from ideal (and assuming you already have your $150k DP). Hence upper limit.

Obviously you can make it much more complicated and include tax savings (if itemizing) and count principal payments as savings, etc. You can estimate housing price appreciation, too. But as a general rule, if you're over 5x your income, you have too much house.

And if you can rent for $2k/mo, then an equivalent $750k house is just financially stupid even if you can afford it. You might have non-financial reasons for owning, of course.

_W

Quote
4-5x income is usually the absolute upper limit for affordability.

W
Pretax or post-tax income?  Before or after 401k contributions?
« Last Edit: December 30, 2014, 09:10:59 PM by waltworks »