How much of savings to spend on house?

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GordonG
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Joined: Mon Mar 23, 2015 2:24 pm

How much of savings to spend on house?

Post by GordonG » Mon Jul 24, 2017 2:17 pm

I've been saving for a while, and have accumulated a decent chunk of money (about $345K). Most of it is in cash (in a couple of high-yield savings accounts), and about $60K is in stocks/bonds fund in my personal brokerage account. There are houses in my price range that I could pay for in cash, but I'm wondering how much to keep left over. I know I shouldn't blow my whole wad, so to speak, but what would be reasonable? I'm thinking I'd like to keep at least $50K on hand for unexpected things.

I also have 403b accounts which would not be touched.

Thesaints
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Re: How much of savings to spend on house?

Post by Thesaints » Mon Jul 24, 2017 2:20 pm

Leaving emergency funds alone, how does your investment expected return compares to a mortgage interest rate, after taxes ?

bloom2708
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Re: How much of savings to spend on house?

Post by bloom2708 » Mon Jul 24, 2017 2:22 pm

Give each of your cash dollars a purpose. Emergency Fund, Taxes Fund, Car Fund, Vacation Fund, House down payment fund..

That doesn't mean you can't keep it in a single account, but often people have a lump of money and it is multiple things. Retirement, emergency, house down payment. Each dollar can only be one thing.

If a $200k house fits your bill and you can pay cash, then do it. Others wouldn't say that, but read all the threads about mortgage payoffs. Especially if the money isn't invested at your desired asset allocation.

Set money aside, use it for a house down payment or get it invested at your desired mix of stocks and bonds.

Good luck!
Last edited by bloom2708 on Mon Jul 24, 2017 2:27 pm, edited 1 time in total.
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H-Town
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Re: How much of savings to spend on house?

Post by H-Town » Mon Jul 24, 2017 2:23 pm

GordonG wrote:I've been saving for a while, and have accumulated a decent chunk of money (about $345K). Most of it is in cash (in a couple of high-yield savings accounts), and about $60K is in stocks/bonds fund in my personal brokerage account. There are houses in my price range that I could pay for in cash, but I'm wondering how much to keep left over. I know I shouldn't blow my whole wad, so to speak, but what would be reasonable? I'm thinking I'd like to keep at least $50K on hand for unexpected things.

I also have 403b accounts which would not be touched.
I would keep 6 months of living expense and roughly 50k for furniture, appliances, and unexpected expenses related to your newly purchased house. Then, I would put the remainder on the house. The sooner you pay off the mortgage, the better you will be for the long run. I hate paying any kind of interest, even with the mortgage interest that you can recoup a portion of it using itemized deductions.

Topic Author
GordonG
Posts: 64
Joined: Mon Mar 23, 2015 2:24 pm

Re: How much of savings to spend on house?

Post by GordonG » Mon Jul 24, 2017 2:45 pm

Thesaints wrote:Leaving emergency funds alone, how does your investment expected return compares to a mortgage interest rate, after taxes ?
My rate of return (for my retirements account) for the year is about 10%. Looks like mortgage rates are a little under 4% around here at the moment.
thangngo wrote:
GordonG wrote:I've been saving for a while, and have accumulated a decent chunk of money (about $345K). Most of it is in cash (in a couple of high-yield savings accounts), and about $60K is in stocks/bonds fund in my personal brokerage account. There are houses in my price range that I could pay for in cash, but I'm wondering how much to keep left over. I know I shouldn't blow my whole wad, so to speak, but what would be reasonable? I'm thinking I'd like to keep at least $50K on hand for unexpected things.

I also have 403b accounts which would not be touched.
I would keep 6 months of living expense and roughly 50k for furniture, appliances, and unexpected expenses related to your newly purchased house. Then, I would put the remainder on the house. The sooner you pay off the mortgage, the better you will be for the long run. I hate paying any kind of interest, even with the mortgage interest that you can recoup a portion of it using itemized deductions.
This is me :happy I hate paying interest, too, and would rather not be in debt if I can avoid it. I'm hoping to find a house in the $250-275K range max. That would still leave me with $70K for an emergency fund, discretionary spending, investing, etc. In my mind, this seems like a fairly safe thing to do, but I just wanted to get some opinions from all the Bogleheads :sharebeer

I manage to save a lot now, but without rent or a mortgage, I'd be able to save even more. I know some recommend taking a mortgage and using my cash for investing, but then there's the risk to consider.

Thesaints
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Re: How much of savings to spend on house?

Post by Thesaints » Mon Jul 24, 2017 2:53 pm

If your mortgage interest is substantialy below the expected return from your investments, you should be jumping with joy at the idea of paying for a mortgage.

Topic Author
GordonG
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Joined: Mon Mar 23, 2015 2:24 pm

Re: How much of savings to spend on house?

Post by GordonG » Tue Jul 25, 2017 7:33 am

The other option I've been considering is buying something in the $300-400K range, putting down a large payment and taking a loan for the rest. However, then I'm in debt, which I'd like to avoid if possible.

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