The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: TheStachery on August 01, 2016, 11:56:34 AM
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I’m wondering what the best approach is to saving up a down payment, when I already have a mortgage.
We have a house that is not our “forever” house and want to move in a couple years. We have been saving up for a down payment on the new house. I have been paying a couple hundred dollar extra on my existing mortgage.
Our existing mortgage is at 4.125% and still owe 200k on it. We really want to save up a another full down payment for our new house and not have a contingency on the existing house. Our existing house has appreciated, and has some equity in it. (about 60k)
If it were you, would you stop paying extra on the principal on the existing mortgage and put it to the new downpayment? or just leave it as it is? The savings for the new downpayment is going in a regular savings account, so no real growth on the money.
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Realistically how likely is it your current house would sell quickly?
You could HELOC your equity out of your house. But this is quite dangerous if you are unable to sell it in a reasonable period of time.
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What is the plan for your current house once you are in your new forever house? If you plan on selling, then IMO it makes no sense to keep paying the extra on your existing mortgage. That money could be better spent on saving towards your new down payment.
Another thought, even if you have 20% down, you will still need to show that your dept to income ratio is good with both mortgages for a lender to lend to you...otherwise your new purchase will still be contingent on you selling your first house to bring your ratio down. If you make bank and can cover both mortgages, then this isn't an issue for you.
Using a basic savings account to save up for a down payment is not doing you any favors. The best savings accounts pay around 1% interest. You could have the money invested in funds that have a much better rate of return and are still liquid enough to be used as a down payment when needed. Even making 4% return verses 1% ends up being significant on larger sums of money (over $300 difference on $10,000 invested for a year).
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What is the plan for your current house once you are in your new forever house? If you plan on selling, then IMO it makes no sense to keep paying the extra on your existing mortgage. That money could be better spent on saving towards your new down payment.
Another thought, even if you have 20% down, you will still need to show that your dept to income ratio is good with both mortgages for a lender to lend to you...otherwise your new purchase will still be contingent on you selling your first house to bring your ratio down. If you make bank and can cover both mortgages, then this isn't an issue for you.
Using a basic savings account to save up for a down payment is not doing you any favors. The best savings accounts pay around 1% interest. You could have the money invested in funds that have a much better rate of return and are still liquid enough to be used as a down payment when needed. Even making 4% return verses 1% ends up being significant on larger sums of money (over $300 difference on $10,000 invested for a year).
There's a fund that guarantees returns of 4% or higher?
I agree it makes no sense to keep paying extra towards principle right now.
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I would also stop putting extra into the mortgage. I put my down payment in the short term bond index VSCSX while I was looking, it only yields like 2% but it is better than nothing and doesn't really fluctuate.
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What is the plan for your current house once you are in your new forever house? If you plan on selling, then IMO it makes no sense to keep paying the extra on your existing mortgage. That money could be better spent on saving towards your new down payment.
Another thought, even if you have 20% down, you will still need to show that your dept to income ratio is good with both mortgages for a lender to lend to you...otherwise your new purchase will still be contingent on you selling your first house to bring your ratio down. If you make bank and can cover both mortgages, then this isn't an issue for you.
Using a basic savings account to save up for a down payment is not doing you any favors. The best savings accounts pay around 1% interest. You could have the money invested in funds that have a much better rate of return and are still liquid enough to be used as a down payment when needed. Even making 4% return verses 1% ends up being significant on larger sums of money (over $300 difference on $10,000 invested for a year).
There's a fund that guarantees returns of 4% or higher?
I agree it makes no sense to keep paying extra towards principle right now.
Never a guarantee, but a pretty good chance of doing better than 1%
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I would stop paying extra to the mortgage.
A few years ago I was looking to buy a home before my old home sold (wanted to move out before we got it cleaned up and listed) but the bank was requiring down payment PLUS enough in savings to cover 6 months payments on BOTH houses. This was a few years ago and I know that most banks have eased up a little but you are going to want as much money in savings as possible if you don't want your offer on the new house to be contingent on closing on the old/current house.
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I agree with others. I'm a proponent of paying off mortgages early in some cases, but this is not one of those cases. You are planning to sell, so I wouldn't pay another penny over the payment to your existing mortgage.
For a downpayment fund, I'd probably play it pretty conservative and go with high-interest savings.
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Refinance that mortgage down from 4%.