Author Topic: Starting to save for home downpayment - where to put money??  (Read 4167 times)

Memphis Mustache

  • 5 O'Clock Shadow
  • *
  • Posts: 38
Starting to save for home downpayment - where to put money??
« on: September 25, 2015, 10:28:12 PM »
So, I am currently a renter but I am beginning the process of saving money for a home downpayment (hopefully a 20 percent downpayment). I plan to save $1,500 to $1,800 per month for the next 18 to 36 months, depending on how long I can hold out before deciding to take the plunge and buy.

The question is: where should I be storing this money? I know that plenty of people would not want this money in a fund where there could be some volatity, as that could lead to the loss of a decent amount of the principal if the market takes a downturn. Those people would say to put the money in a Money Market Account or a CD. However, MMAs and CDs maybe pay out 1 percent, which just isn't much. I have a Vanguard Brokerage account and have put $3,800 into Vanguard EFTs. Is that a wise idea for where to store my downpayment money so that it can hopefully grow with a decent amount of interest? Is that too risky?

I was thinking that putting most of it in VOO (S&P 500) and VTI (Total Stock Market) would be the best way to go, with maybe a little in bonds.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4631
  • Age: 34
  • Location: Seattle, WA
Re: Starting to save for home downpayment - where to put money??
« Reply #1 on: September 25, 2015, 10:54:10 PM »
On average, you'll end up with more money in three years if you put it in the stock market than if you put it anywhere else, but the variability is a lot higher. You might end up with less than you put in, or a lot more. If you're very intent on buying a house within three years and you very much want to have at least ($1,500 * 36) available for that purpose, the stock market is not the right place for the money. If you're willing to take your chances and wait several years for a house if the market doesn't want you to have one yet, the expected value of stock investing is a bit higher.

TomTX

  • Magnum Stache
  • ******
  • Posts: 3271
  • Location: Texas
Re: Starting to save for home downpayment - where to put money??
« Reply #2 on: September 26, 2015, 07:27:11 AM »
"High interest" (1%) savings account.

Sorry, man. Stock market is way too volatile if you have a firm date for house purchase in mind.

Retired To Win

  • Handlebar Stache
  • *****
  • Posts: 1494
  • Age: 71
  • Location: Virginia
  • making the most of my time and my money
    • Retired To Win
Re: Starting to save for home downpayment - where to put money??
« Reply #3 on: September 26, 2015, 08:25:28 AM »
"High interest" (1%) savings account.

Sorry, man. Stock market is way too volatile if you have a firm date for house purchase in mind.

Absolutely this!  An 18-month time horizon is definitely not appropriate for stock investments.  Take the 1% and be happy.

Good luck.

dudde_devaru

  • 5 O'Clock Shadow
  • *
  • Posts: 92
Re: Starting to save for home downpayment - where to put money??
« Reply #4 on: September 26, 2015, 08:37:09 AM »
I saved $10k and opened new Chase Savings account for $200 bonus. Now, I have satisfied their rules for bonus, so taking $$$ from there and dumping into new Huntington bank checking with $300 new account bonus. After 6 months, will move it to a new savings account. If you can get your spouse also to do this, it will be a good 'Investment' with decent returns.
« Last Edit: September 26, 2015, 08:38:41 AM by dudde_devaru »

GGNoob

  • Pencil Stache
  • ****
  • Posts: 725
  • Age: 32
  • Location: Colorado
Re: Starting to save for home downpayment - where to put money??
« Reply #5 on: September 26, 2015, 11:07:25 AM »
I saved $10k and opened new Chase Savings account for $200 bonus. Now, I have satisfied their rules for bonus, so taking $$$ from there and dumping into new Huntington bank checking with $300 new account bonus. After 6 months, will move it to a new savings account. If you can get your spouse also to do this, it will be a good 'Investment' with decent returns.

If you are willing to play "games," this may be a good way to go. You'll probably earn more than just putting it into a 'high-yield' savings account.

I would not invest it in just VOO or VTI. If I were to invest it, I would pick a conservative fund of 20-30% stock and the rest in bonds. Something like Vanguard's Wellesley Income Fund or their LifeStrategy Income Fund. But if you choose to invest it, you'll have to be flexible with your purchase date if the stock market is down and you don't want to lose money.

JLR

  • Bristles
  • ***
  • Posts: 496
  • Location: Australia
Re: Starting to save for home downpayment - where to put money??
« Reply #6 on: September 27, 2015, 11:57:01 PM »
Where do you live? I get 3.5% interest on my savings account in Australia. I'm happy with that over shares for tucking away money to possibly  buy a house in the next few years.

Inkedup

  • Stubble
  • **
  • Posts: 170
  • Location: USA
  • Striving for FI.
Re: Starting to save for home downpayment - where to put money??
« Reply #7 on: September 28, 2015, 07:35:22 AM »
Where do you live? I get 3.5% interest on my savings account in Australia. I'm happy with that over shares for tucking away money to possibly  buy a house in the next few years.

In the US, 1% is generally the standard interest rate on "high yield" CDs. Pretty sad. (There was talk about the feds raising the interest rates the other week, but they passed.)

slimwhoisdirtay

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: Starting to save for home downpayment - where to put money??
« Reply #8 on: September 28, 2015, 08:16:20 AM »
I'm in a similar situation and had a different idea.  I have a 403b that allows loans to be taken out.  Would it be viable to increase contributions (tax free) into the 403b until ready to purchase a home then loan the amount needed for a down payment?



Memphis Mustache

  • 5 O'Clock Shadow
  • *
  • Posts: 38
Re: Starting to save for home downpayment - where to put money??
« Reply #9 on: September 28, 2015, 12:52:43 PM »
I am located in Memphis, TN. I guess I will either squirrel money away in one of the "safer" Vanguard mutual funds or into my Kasasa account, which earns 3.01 percent on the first 15k for checking and 1.01 percent on the first 15k for saving.

Mr.GrowingMustache

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: Starting to save for home downpayment - where to put money??
« Reply #10 on: September 29, 2015, 03:10:27 PM »
I am in the same boat as OP, and I am trying to stash away about $2k each month for at least a year until I hit $20k goal. Than I will reevaluate and continue to $30-40k, or sell some of my long term stocks for the additional $20k.

I also have a house that I need to sell, and I assume that I will not make any $$ off of the sale :/, but I will also not have to pay any either.

What I am doing is a Betterment "House Fund" with a 30/70 allocation in stocks/bonds. Currently I have $4k invested with -2.5%, but I am hoping that by 2 years time and dollar cost averaging I will be ok.

YoungInvestor

  • Bristles
  • ***
  • Posts: 388
Re: Starting to save for home downpayment - where to put money??
« Reply #11 on: September 29, 2015, 03:30:40 PM »
There are some CDs with returns linked to the market...

You might need to shop around for something lasting less than 3 years, but it seems like a good option to me.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1292
Re: Starting to save for home downpayment - where to put money??
« Reply #12 on: September 29, 2015, 05:50:20 PM »
So, I am currently a renter but I am beginning the process of saving money for a home downpayment (hopefully a 20 percent downpayment). I plan to save $1,500 to $1,800 per month for the next 18 to 36 months, depending on how long I can hold out before deciding to take the plunge and buy.

The question is: where should I be storing this money? I know that plenty of people would not want this money in a fund where there could be some volatity, as that could lead to the loss of a decent amount of the principal if the market takes a downturn. Those people would say to put the money in a Money Market Account or a CD. However, MMAs and CDs maybe pay out 1 percent, which just isn't much. I have a Vanguard Brokerage account and have put $3,800 into Vanguard EFTs. Is that a wise idea for where to store my downpayment money so that it can hopefully grow with a decent amount of interest? Is that too risky?

I was thinking that putting most of it in VOO (S&P 500) and VTI (Total Stock Market) would be the best way to go, with maybe a little in bonds.

Here is the question that will answer whether you can use VOO. If you saved up all the money for the down payment and then you had 30% less a week later what would you do?  Stocks by themselves are way too volatile for any goal that is shorter than 10 years. Now a balanced mix of stocks and bonds can work. VASIX is 80% bonds, 20% stocks. In 2008 it was down about 10%. If you are comfortable with some volatility this might work, but I wouldn't go any more aggressive than that for a short term goal.

I would also investigate mangomoney. I have 5k there earning 6% interest right now. The downside is the cap is 5k, but that 5k is working really hard and FDIC insured.

There are some CDs with returns linked to the market...

You might need to shop around for something lasting less than 3 years, but it seems like a good option to me.

There are also annuities with returns linked to the market. In general these products are all crap designed to make it easier for a crappy advisor to get a risk averse naive client into something with "stock like returns and no downside!"  After you dig through all the disclosures and try to calculate the returns a person would actually get they are normally about equal to... you guessed it... a CD. There is a relationship between risk and return. More return requires more risk, and if the insurance company had a magic bullet to get stock returns with no risk they wouldn't share it with you.

index

  • Bristles
  • ***
  • Posts: 292
Re: Starting to save for home downpayment - where to put money??
« Reply #13 on: September 29, 2015, 08:23:01 PM »
The stock market is not the place for short term savings. Best case scenario is you make what? 15% on your average savings? So 15% on 18k - $2700 or two months savings. Is it worth delaying being able to buy a home just to get there 2 months early?

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 1916
  • Age: 53
  • Location: Ann Arbor, Michigan
Re: Starting to save for home downpayment - where to put money??
« Reply #14 on: September 29, 2015, 08:36:42 PM »
I see elements.org has a 1.5% 26 month CD savings rate.