Home Advice

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FeedMeMore
Posts: 4
Joined: Wed Jan 11, 2017 3:49 pm

Home Advice

Post by FeedMeMore » Wed Jan 11, 2017 4:14 pm

Hello. I recently started reading this forum to grasp a better understanding of how to invest and save more money. I can see myself start to implement the same philosophies as I learn more. This the first time I post something so I apologize if I'm doing it wrong. Here is my question:

We are currently in the process of receiving a cash gift to assist for a down payment on a home (first home). We are still months away (summer or end of year) from entertaining the idea of looking for a home (currently paying down some debt). We want to know if there is a safe way of handling the gift by gaining some interest (CD or other options) without losing the value of it. I know that we can just leave it in our bank till we are ready but wanted to know of any options out there that I may not be aware of. Also I'm new to this so any advice would definitely be appreciated. Thank you in advance.

NoD
Posts: 48
Joined: Thu Jan 14, 2016 12:35 pm

Re: Home Advice

Post by NoD » Wed Jan 11, 2017 5:25 pm

If your timeframe is that short, Ally bank at 1% is about all I'd recommend.
Some day we'll look back on all this and plow into a parked car.

FeedMeMore
Posts: 4
Joined: Wed Jan 11, 2017 3:49 pm

Re: Home Advice

Post by FeedMeMore » Wed Jan 11, 2017 5:42 pm

Yeah In the research I was doing I found that to be the resounding answer just wanted to see if there was something I might have been overlooking, but thank you NoD for the advice. As a follow up question what would be a good time frame to keep the gift in order to open other possibilities?

Easy Rhino
Posts: 3202
Joined: Sun Aug 05, 2007 11:13 am
Location: San Diego

Re: Home Advice

Post by Easy Rhino » Wed Jan 11, 2017 5:52 pm

yeah just park it in a saving/money market.

Note that it would be most best if you could keep it in the account that you plan to wire the money out of as part of the closing. Because you will probably be asked to provide bank statements as part of the loan underwriting, and more recent bank history after wiring funds, and it's simpler if you haven't' shifted the funds to a different account in the meantime.

Morik
Posts: 706
Joined: Tue Nov 25, 2014 12:26 pm

Re: Home Advice

Post by Morik » Wed Jan 11, 2017 6:03 pm

FeedMeMore wrote:Yeah In the research I was doing I found that to be the resounding answer just wanted to see if there was something I might have been overlooking, but thank you NoD for the advice. As a follow up question what would be a good time frame to keep the gift in order to open other possibilities?


Here is what I use as a starting point for how to allocate based on time horizon.
This needs to be adjusted for your particular goal; you may be more or less willing to take risk. E.g., a soft date like "I think I want a new car in 7 years, but if its actually 10 years that is ok too" can have a more aggressive allocation (if you want--it doesn't have to) than a hard date like "I need the down payment for my new house in 3 years. We MUST move in 3 years, we must have at least $X at that time".

Time Horizon & Equities: See chart in this middle of this article: http://www.cbsnews.com/news/asset-alloc ... -you-take/

I think it is a reasonable starting point. The other opinions I've seen on the forums tend to be more conservative. E.g,. I've seen a few different people say not to hold any equities if your time horizon is 5 years or less. The chart in that article only goes down to 0% equities at <= 3 years.

Time Horizon & Bond Duration
I also keep my bond duration <= the remaining time frame.
E.g., if you have 4 years left, I wouldn't want a bond fund with > 4 year duration.

I do this by mixing different things. I count cash and cash-like instruments (CDs, for instance) as a 0 duration bond.
E.g., if the available bond funds are:
A 1.5 year duration fund, a 4 year duration fund, and a 10 year duration fund.

And you have a 6 year timeframe, you could put your bond allocation 2/3rds in the 4 year fund, and 1/3rd in the 10 year fund, for an average of around 6 year duration.

At a 1 year timeframe you could do 2/3rds in the 1.5 year fund, and 1/3rd in cash (CD, bank account, etc).

So for a full example, at 6 years out maybe you have 20% stock and 80% bonds.
With a $10k account, that would look like:
$2,000 equities (US/international split as you like)
$5,400 4-year duration bond fund
$2,600 10-year duration bond fund

Ace$
Posts: 32
Joined: Wed Jan 11, 2017 11:07 am

Re: Home Advice

Post by Ace$ » Wed Jan 11, 2017 6:11 pm

I would recommend postponing the home purchase until you have all your consumer debt paid off and a healthy emergency fund in place. You may want to consider using some of these funds towards that purpose. Too many people buy a home while in debt with insufficient cash on hand and get into a jam when the new home needs things.

But to your question, I would parrot the advice of just parking these monies in a savings/money market account and letting them sit there until it's time to close.

FeedMeMore
Posts: 4
Joined: Wed Jan 11, 2017 3:49 pm

Re: Home Advice

Post by FeedMeMore » Wed Jan 11, 2017 7:05 pm

Morik wrote:
FeedMeMore wrote:Yeah In the research I was doing I found that to be the resounding answer just wanted to see if there was something I might have been overlooking, but thank you NoD for the advice. As a follow up question what would be a good time frame to keep the gift in order to open other possibilities?


Here is what I use as a starting point for how to allocate based on time horizon.
This needs to be adjusted for your particular goal; you may be more or less willing to take risk. E.g., a soft date like "I think I want a new car in 7 years, but if its actually 10 years that is ok too" can have a more aggressive allocation (if you want--it doesn't have to) than a hard date like "I need the down payment for my new house in 3 years. We MUST move in 3 years, we must have at least $X at that time".

Time Horizon & Equities: See chart in this middle of this article: http://www.cbsnews.com/news/asset-alloc ... -you-take/

I think it is a reasonable starting point. The other opinions I've seen on the forums tend to be more conservative. E.g,. I've seen a few different people say not to hold any equities if your time horizon is 5 years or less. The chart in that article only goes down to 0% equities at <= 3 years.

Time Horizon & Bond Duration
I also keep my bond duration <= the remaining time frame.
E.g., if you have 4 years left, I wouldn't want a bond fund with > 4 year duration.

I do this by mixing different things. I count cash and cash-like instruments (CDs, for instance) as a 0 duration bond.
E.g., if the available bond funds are:
A 1.5 year duration fund, a 4 year duration fund, and a 10 year duration fund.

And you have a 6 year timeframe, you could put your bond allocation 2/3rds in the 4 year fund, and 1/3rd in the 10 year fund, for an average of around 6 year duration.

At a 1 year timeframe you could do 2/3rds in the 1.5 year fund, and 1/3rd in cash (CD, bank account, etc).

So for a full example, at 6 years out maybe you have 20% stock and 80% bonds.
With a $10k account, that would look like:
$2,000 equities (US/international split as you like)
$5,400 4-year duration bond fund
$2,600 10-year duration bond fund



This is very helpful. Thank you. This is the first time we are starting this process so as we move forward with additional goals we want to be more wise and prepared as before. Certainly there will be additional goals we want to fulfill after obtaining this home and by understanding more how to smartly allocate our money it will help us have that peace of mind of not feeling like we wasted valuable time by not investing smartly.

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jfn111
Posts: 814
Joined: Fri Nov 08, 2013 10:42 pm
Location: Minnesota

Re: Home Advice

Post by jfn111 » Wed Jan 11, 2017 7:05 pm

Easy Rhino wrote:yeah just park it in a saving/money market.

Note that it would be most best if you could keep it in the account that you plan to wire the money out of as part of the closing. Because you will probably be asked to provide bank statements as part of the loan underwriting, and more recent bank history after wiring funds, and it's simpler if you haven't' shifted the funds to a different account in the meantime.

+1
If you have had the money for months you don't have to declare it as a gift, on the loan application, but they want to see what account it comes out of.

FeedMeMore
Posts: 4
Joined: Wed Jan 11, 2017 3:49 pm

Re: Home Advice

Post by FeedMeMore » Wed Jan 11, 2017 7:12 pm

Ace$ wrote:I would recommend postponing the home purchase until you have all your consumer debt paid off and a healthy emergency fund in place. You may want to consider using some of these funds towards that purpose. Too many people buy a home while in debt with insufficient cash on hand and get into a jam when the new home needs things.

But to your question, I would parrot the advice of just parking these monies in a savings/money market account and letting them sit there until it's time to close.


Yeah Ace I agree with you and that is why we are not considering doing anything until we are debt free (which is really soon and we are excited about that). We have also made sure we have an emergency fund since we have both experience the huge stress reliever that is when we both have gone through unemployment on different times before. That is why I'm trying to learn as much as I can so that not only we are prepared but it won't hurt us in our long term plans as well. The last thing we want is to buy a home only to default because we were never ready to begin with. You know? Thank you for the advice.

Ace$
Posts: 32
Joined: Wed Jan 11, 2017 11:07 am

Re: Home Advice

Post by Ace$ » Wed Jan 11, 2017 7:30 pm

FeedMeMore wrote:
Ace$ wrote:I would recommend postponing the home purchase until you have all your consumer debt paid off and a healthy emergency fund in place. You may want to consider using some of these funds towards that purpose. Too many people buy a home while in debt with insufficient cash on hand and get into a jam when the new home needs things.

But to your question, I would parrot the advice of just parking these monies in a savings/money market account and letting them sit there until it's time to close.


Yeah Ace I agree with you and that is why we are not considering doing anything until we are debt free (which is really soon and we are excited about that). We have also made sure we have an emergency fund since we have both experience the huge stress reliever that is when we both have gone through unemployment on different times before. That is why I'm trying to learn as much as I can so that not only we are prepared but it won't hurt us in our long term plans as well. The last thing we want is to buy a home only to default because we were never ready to begin with. You know? Thank you for the advice.


Sounds like you've got a good plan in place. Best of luck.

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