Saving for a downpayment on a house. Help?!

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njfastlife
Posts: 134
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Saving for a downpayment on a house. Help?!

Post by njfastlife » Fri Aug 10, 2018 8:04 am

hey all, my wife and i are in the midst of saving for a downpayment on our first house.

unfortunately for us, homes in our region (NYC metro) are quite expensive and that's before you factor taxes into the equation. at any rate, we'd hope to put down as close to 20% as possible - and we're probably a bit far behind the 8 ball.

that said, right now we have about $50K sitting in a joint savings account. if our plan is to buy a home within the next two years (at least 1 year away but unlikely more than 2), is having our downpayment sitting in a savings account the smartest place?

PFInterest
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Re: Saving for a downpayment on a house. Help?!

Post by PFInterest » Fri Aug 10, 2018 8:08 am

yes. Ally is at 1.8% right now.
how much is 20%?

Cop51
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Re: Saving for a downpayment on a house. Help?!

Post by Cop51 » Fri Aug 10, 2018 8:12 am

Depending on the saving account interest rate yes it could be your best place. If its a low interest .05% you can open a high interest savings, or Money Market account (Ally, Capital One) getting around 2% interest on the money. I would put the money no where else if it was me. This is a short term goal you are trying to reach and you want to have it accessible for the home purchase when you find one, so I would not do a CD.

Grt2bOutdoors
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Re: Saving for a downpayment on a house. Help?!

Post by Grt2bOutdoors » Fri Aug 10, 2018 8:22 am

An alternative fund to use is the Vanguard US Treasury Money Market Fund - yield is currently 1.87%. The benefit of it over the FDIC savings account, the interest is 100% tax exempt from state/local income tax. So your tax effective yield will be higher than a savings account. It's solely invested in US Treasury bills, the most liquid security out there and AAA rated. The minimum to enter the fund is $50,000.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

njfastlife
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Re: Saving for a downpayment on a house. Help?!

Post by njfastlife » Fri Aug 10, 2018 8:35 am

PFInterest wrote:
Fri Aug 10, 2018 8:08 am
yes. Ally is at 1.8% right now.
how much is 20%?
we'd feel good with $100K downpayment likely.

PFInterest
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Re: Saving for a downpayment on a house. Help?!

Post by PFInterest » Fri Aug 10, 2018 8:42 am

njfastlife wrote:
Fri Aug 10, 2018 8:35 am
PFInterest wrote:
Fri Aug 10, 2018 8:08 am
yes. Ally is at 1.8% right now.
how much is 20%?
we'd feel good with $100K downpayment likely.
your home is only 500K? in NYC metro......

DiMAn0684
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Re: Saving for a downpayment on a house. Help?!

Post by DiMAn0684 » Fri Aug 10, 2018 8:44 am

There's an occasional short term CD deal with better rates, seen 2.75-3% for 13 month this year, but outside of that ~2% savings account is just fine.

njfastlife
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Re: Saving for a downpayment on a house. Help?!

Post by njfastlife » Fri Aug 10, 2018 8:51 am

PFInterest wrote:
Fri Aug 10, 2018 8:42 am
njfastlife wrote:
Fri Aug 10, 2018 8:35 am
PFInterest wrote:
Fri Aug 10, 2018 8:08 am
yes. Ally is at 1.8% right now.
how much is 20%?
we'd feel good with $100K downpayment likely.
your home is only 500K? in NYC metro......
a starter home can be had in that range. and i said "as close to 20% as possible"

njfastlife
Posts: 134
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Re: Saving for a downpayment on a house. Help?!

Post by njfastlife » Fri Aug 10, 2018 8:52 am

Cop51 wrote:
Fri Aug 10, 2018 8:12 am
Depending on the saving account interest rate yes it could be your best place. If its a low interest .05% you can open a high interest savings, or Money Market account (Ally, Capital One) getting around 2% interest on the money. I would put the money no where else if it was me. This is a short term goal you are trying to reach and you want to have it accessible for the home purchase when you find one, so I would not do a CD.
it's a Chase Savings Account, 0.1% i believe.

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jharkin
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Re: Saving for a downpayment on a house. Help?!

Post by jharkin » Fri Aug 10, 2018 9:48 am

njfastlife wrote:
Fri Aug 10, 2018 8:51 am

a starter home can be had in that range. and i said "as close to 20% as possible"
Well, if you get "close', I would carefully evaluate if waiting another 6 months or a year will put you over. Remember if you are even a couple % shy of 20 you are likely going to have to get a loan with PMI, or an 80/5/15 or similar. Oh and don't forget to budget for closing costs, movers, all the new appliances and furniture you may need/want, etc.

And then when you are considering a few more months saving, also think about whether its worth it to jump now on a "starter" or wait another year or two and buy a long term house. My wife and I jumped on a starter in the 300s in Boston metro as soon as we could afford it, but effectively outgrew the house in less than 5 years as soon as kids came along. We are now trying to move (10 years in the house, very cramped) and part of me wishes we had waited till we could afford a larger house.

Grt2bOutdoors
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Re: Saving for a downpayment on a house. Help?!

Post by Grt2bOutdoors » Fri Aug 10, 2018 2:50 pm

njfastlife wrote:
Fri Aug 10, 2018 8:51 am
PFInterest wrote:
Fri Aug 10, 2018 8:42 am
njfastlife wrote:
Fri Aug 10, 2018 8:35 am
PFInterest wrote:
Fri Aug 10, 2018 8:08 am
yes. Ally is at 1.8% right now.
how much is 20%?
we'd feel good with $100K downpayment likely.
your home is only 500K? in NYC metro......
a starter home can be had in that range. and i said "as close to 20% as possible"
They can be had for less than that, but then you have to take it down to the studs....
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Saving for a downpayment on a house. Help?!

Post by Grt2bOutdoors » Fri Aug 10, 2018 2:51 pm

njfastlife wrote:
Fri Aug 10, 2018 8:52 am
Cop51 wrote:
Fri Aug 10, 2018 8:12 am
Depending on the saving account interest rate yes it could be your best place. If its a low interest .05% you can open a high interest savings, or Money Market account (Ally, Capital One) getting around 2% interest on the money. I would put the money no where else if it was me. This is a short term goal you are trying to reach and you want to have it accessible for the home purchase when you find one, so I would not do a CD.
it's a Chase Savings Account, 0.1% i believe.
Stop giving your money to Chase, move it. That’s an extra $500 to $600 in your pocket instead of theirs.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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wabbajack
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Re: Saving for a downpayment on a house. Help?!

Post by wabbajack » Fri Aug 10, 2018 3:03 pm

Plenty of savings accounts that are paying in the 1.7% to 1.8% range. I use Discover.
If you know you're not going to touch (i.e. shop) the money for 12 months, I'd consider a CD. You can get one for ~2.3% from Marcus or any number of others. See nerdwallet or other review sites.

Jags4186
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Re: Saving for a downpayment on a house. Help?!

Post by Jags4186 » Fri Aug 10, 2018 3:07 pm

PFInterest wrote:
Fri Aug 10, 2018 8:42 am
njfastlife wrote:
Fri Aug 10, 2018 8:35 am
PFInterest wrote:
Fri Aug 10, 2018 8:08 am
yes. Ally is at 1.8% right now.
how much is 20%?
we'd feel good with $100K downpayment likely.
your home is only 500K? in NYC metro......
Easily possible--we just bought a home NYC Metro, 3br 1.5ba 1500sqft for $469k. As long as OP looks in a town that does not have a midtown direct train he will have plenty of homes to choose from in the $400-$500k range.

OP, we saved in a savings account and then used our taxable account to fund the rest. As a recent first time home buyer I have a few other recommendations for you. Save more than you think you need. If you buy a $500,000 house with $100,000 down you'll likely need closer to $110,000 - $115,000 just to buy the house. You will have fees out the wazoo you don't know about. For example, home inspection, appraisal, survey, in New Jersey you may want to do an oil tank scan if you don't have proof one has been removed. On top of that you will need to pay a lawyer, approximately $3000-$5000 in title company/title insurance fees, and depending when you close you might need to come up with as much as 4 months of property taxes which could run you easily another $4,000-$5,000. You'll also need to prepay a years home owners insurance.

After all of that, you'll have to pay for movers, and if you're like me coming from an apartment you'll need to buy some furniture. Don't forget about things like window treatments, etc. We had to spend $3000 to have cellular shades installed on all of our windows...for the first 3 weeks we were in the house we were basically living in a fishbowl. You might also want to fix a few things (we ripped up some carpet and had the hardwood underneath sanded and stained before any furniture was moved in). That was another $5000. On top of that, again if you're coming from an apartment, there's tons of stuff you don't realize you don't have. We spent $1000 on lawn equipment (lawn mower, weed whacker, leaf blower, rake, gardening tools, etc.). Our house came with a junky washer and dryer, but they work. If yours doesn't that would be another $1000 or so you'll drop.

I guess my point is....if you have $50,000 today and you want to put $100,000 down....you might really want to aim to have about $150,000-$180,000 in taxable monies before you actually buy. It would be a bad feeling to buy the place, move in, want to do a bunch of stuff but realize you have no money.

Grt2bOutdoors
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Re: Saving for a downpayment on a house. Help?!

Post by Grt2bOutdoors » Fri Aug 10, 2018 7:32 pm

^^ don’t forget the 22 or 24 inch dual stage snowblower you’ll be needing. First major snowstorm, you’ll wish you had one.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

FunnelCakeBob
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Re: Saving for a downpayment on a house. Help?!

Post by FunnelCakeBob » Fri Aug 10, 2018 7:42 pm

Definitely keep it in a safe FDIC insured savings or money market account, or Vanguard prime money fund where you can earn close to 2%. CDs could work if you can withdraw penalty free once you find your dream home.

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