Saving for house downpayment

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abhi764
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Joined: Sun Mar 15, 2020 11:58 pm

Saving for house downpayment

Post by abhi764 »

I have an index funds based portfolio, and I have been investing regularly from my paychecks. We plan to buy a home next year (mid 2022), and would need about $150K for a 20% downpayment for houses in my area.

I am considering the following options:

1. Continue to invest regularly, and sell off long term gain assets from my portfolio, when it's time to make the down payment.
2. Pause contributions to my portfolio, and start building up savings in a less volatile vehicle (Eg, high savings rate certiftificate deposit).

I am leaning more towards #1, as we are a bit flexible with our homebuying plan. If market tanks before June 2022, I think we can wait a year or two for the market to recover.

Questions:
Q1: What are some other issues with approach #1 that I should consider?
Q2. How do I reduce tax burden with selling stocks in #1?
Q3: Are there any other approaches I could explore for paying for home downpayment?
Last edited by abhi764 on Fri Jun 11, 2021 2:04 pm, edited 1 time in total.
livesoft
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Re: Saving for house downpayment

Post by livesoft »

We did #1. We ended up not buying a home as expected and moved to a different state where home prices were 1/3rd to 1/4th what we were expecting to pay and then bought a bigger house on more land and paid much much less.

One can dial-in the risk they wish to accept by choosing their asset allocation for this down payment investment. And one can always change it on the fly.
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anon_investor
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Re: Saving for house downpayment

Post by anon_investor »

abhi764 wrote: Fri Jun 11, 2021 1:32 pm I have an index funds based portfolio, and I have been investing regularly from my paychecks. We plan to buy a home next year (mid 2022), and would need about $150K for a 20% downpayment for houses in my area.

I am considering the following options:

1. Continue to invest regularly, and sell off long term gain assets from my portfolio, when it's time to make the down payment.
2. Pause contributions to my portfolio, and start building up savings in a less volatile vehicle (Eg, high savings rate certiftificate deposit).

I am leaning more towards #1, as we are a bit flexible with our homebuying plan. If market tanks before June 2022, I think we can wait a year or two for the market to recover.

Questions:
Q1: What are some other issues with approach #1 that I should consider?
Q2: Are there any other approaches I could explore for paying for home downpayment?
If you chose option #1 and the market crashed, are you okay waiting longer to buy a home? If so, go for it.

Personally I did option 2, but HYSA paid better interest back then.
Topic Author
abhi764
Posts: 40
Joined: Sun Mar 15, 2020 11:58 pm

Re: Saving for house downpayment

Post by abhi764 »

livesoft wrote: Fri Jun 11, 2021 1:35 pm We did #1. We ended up not buying a home as expected and moved to a different state where home prices were 1/3rd to 1/4th what we were expecting to pay and then bought a bigger house on more land and paid much much less.

One can dial-in the risk they wish to accept by choosing their asset allocation for this down payment investment. And one can always change it on the fly.
Thanks for sharing your experience. Just curious, was it like switching jobs and moving to new area with lower cost of living? Also, did you already know people there, or had to rebuild your social connections in the new area? Losing the community is a major concern that we have, when considering moving to a far off area with cheaper houses...
KlangFool
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Re: Saving for house downpayment

Post by KlangFool »

OP,

A) Do you max up all your tax-advantaged accounts? If not, you are paying a lot of taxes in order to build up this savings. Why do you choose to do this?

B) What is your gross household income?

C) What is the price of the house that you plan to buy?

D) Are you planning to buy a house that you cannot afford?

E) What is the current size of your emergency fund?

F) What is the size of your emergency fund after buying the house?

G) Between (E) and (F), don't you need enough CASH before you think about buying the house?

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livesoft
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Re: Saving for house downpayment

Post by livesoft »

abhi764 wrote: Fri Jun 11, 2021 2:37 pmThanks for sharing your experience. Just curious, was it like switching jobs and moving to new area with lower cost of living?
Yes. And got a significant pay raise, too.

Also, did you already know people there,
Yes.

or had to rebuild your social connections in the new area?
Yes. Also kept social connections in previous places we had lived.

Losing the community is a major concern that we have, when considering moving to a far off area with cheaper houses...
I find it easy for us to make friends and social connections, so that would never be my concern.
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anon_investor
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Re: Saving for house downpayment

Post by anon_investor »

abhi764 wrote: Fri Jun 11, 2021 1:32 pm Q3: Are there any other approaches I could explore for paying for home downpayment?
Are you absolutely sure you need to buy a house next year? Is there the potential for any changes in your life that might make you relocate?

A few years ago, I was looking to upgrade from a 2BR condo to a SFH (growing family) in a HCOL area, then I ended up relocating to a different part of the country (slightly lower cost of living, but much cheaper housing) for a great job opportunity.

Since it does not seem like you have a definite time frame, one approach would be to keep 80% of the money in a high yield savings account and put 20% into equities, and put all new money 80%/20% like that.
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