Can You Tell Me How to Buy a House? | brokeGIRLrich
No, really… can you? Because I am totally not sure what to do here and I’ve noticed it’s become a trend among the late twenty/thirty something bloggers – medium term financial goals.
Retirement is an easy one for me – it’s ages away and the stock market is clearly the way to go. It will have plenty of time to recover from whatever the heck is going to happen to it over the next 35-ish years and I’m going to have trouble finding anything else that can top that kind of interest rate.
Short term is also an easy one. Emergency funds, savings for anything being bought within 1 year, those all live in a savings account with the highest interest rate I could find… which, quite honestly, won’t be much. The point of most of that money though is to act as a safety net and a safety net isn’t much good at all if you can’t get it under you before you fall.
But medium term… if I’m ready to take out money for a house down payment 5 years from now, there is considerably less guarantee that the market won’t be in a total slump. Ownup has been a helpful resource for me to create my own checklist for buying a house.
If I trap it in a CD, I may change my plans, want to settle down sooner and lose all the interest by cashing it in early.
And, let’s face it, I almost might as well stuff the money in a shoebox in my closet as store it in most savings accounts based off of average savings account interest rates.
Confession: It’s totally in a savings account right now. I consider my house down payment and car savings both as medium term goals (money I plan to try to access in 5-10 years).
Considering fees and everything, I don’t think it’s a problem to save up a decent size chunk and then roll it over into a CD or invest it, but that’s why I’m beginning to consider the issue now, before I hit that magic number (my magic investing number is usually increments of $1,000).
What I’m leaning towards is a general fund that covers the entire stock market or the S&P 500. My current math for the car down payment is based off a purchase I’m hoping will be roughly 7 years away. When I hit the 2 years away mark, I’ll start transferring the money back into savings accounts.
I feel more confident in this plan because based off of the average life of my car, the fact that I don’t drive it all the time due to my weird lifestyle and my ability to keep it moderately well maintained, I think 7 years is reasonable.
That being said, you really never know what the future holds. She could just up and die on me 3 years from today, with the market tanked.
All of life is a gamble.
The account I’m even less sure of is my house down payment savings. I honestly have no immediately or even near immediate plans to buy a home… but I do have a really strong urge to be able to when I do want to.
And with that super vague time commitment, I really have no idea what to do with that money. I mean, probably the same thing as the car payment, but, woah. Stressful.
Just when you start to think you have a few money answers sorted, more pop into view. But considering how tackling those first questions have left me in a much better place than before… I’m going to keep trying to tackle these confusing questions.
Sigh. Life.
So I just started my medium term fund. I put the money in a non retirement investment account. Specifically Vanguard’s moderate growth life strategy fund. Adjusting asset allocation on my own is too overwhelming but I need more of a return than what savings can give.
Stefanie @ The Broke and Beautiful Life recently posted…Millennial Entrepreneurship: The Dream vs. The Reality
I tell clients they should invest the money in a brokerage account (especially if it’s 5 years or more away) but just choose a less aggressive asset allocation than your retirement account. If your retirement account is 80% stocks and 20% bonds, your medium term account should be more like 50% stocks and 50% bonds. Yes, there will be market volatility along the way, but over time, your account will grow and you won’t see quite the dramatic swings in value as you do from your retirement because you have less funds allocated to stocks.
Shannon @ Financially Blonde recently posted…Music Mondays – I Smile
We just saved money in a regular savings account, really didn’t know any better at the time and really didn’t put a lot down. When you actually get into looking at houses, make sure you really give the house a once or twice over and the home inspection is done by a reputable company and not a friend of the real estate agent. We found some many little things wrong once we moved into our home.
Brian @ Debt Discipline recently posted…Week End Round Up #73
I would have my dad inspect it, since he’s a contractor. So at least I don’t have to worry about that.
We did something pretty unconventional with our down payment savings. At the time, it felt like we couldn’t fund retirement and house down payment, so we opted for fully funding our Roth IRAs. If we needed the funds for a down payment, we would raid it. In the meantime, there it was — growing tax-free.
As it turns out, we did raid it. We took out our contributions, plus an extra $10k that is excepted from the early distribution penalty for first-time home purchases.
It was invested in the Vanguard Total Stock Market index fund, which has very low fees. Over the 5 years that our contributions were invested, it has made a significant amount of money. $5,500 bought us 250 shares 5 years ago, but to pull $5,500 out of it, we sold less than 100 shares. So, it more than doubled in the time that it was invested.
Rebecca @ Stapler Confessions recently posted…30 Things To Do Before you Move In To Your First Home
That is awesome. I think a total stock market index fund is probably what I’ll wind up doing.
I bought a house (actually I just bought a mortgage since I’ll be paying on it for a long, long time). I didn’t save anything beforehand and I wish I would’ve.
Kayla @ Everything Finance recently posted…A Complete Guide for First-Time Homebuyers
The thing about a down payment is that house fever can hit unexpectedly and/or you may decide to pounce on a downturn in the housing market. So I’d suggest keeping your funds more fluid.
I think the key is to just figure out what size home you’d want, the approximate price range and start saving toward the 20% mark. Just set things up so you automatically put that money away each month. And in the next couple of years, make sure you take a homebuyer’s class to learn about points, associated fees, etc. I think you can also get a slightly preferential rate from the bank if you attend those.
Abigail @ipickuppennies recently posted…The road to $10,000
I, too, am working on starting a medium term fund. And like you (though probably more so), am unsure about which way to go. I look forward to reading more about your path!
Chela @SmashOdyssey recently posted…Family Lessons: Aunt B
When we looked for a house last month, I told myself that we should save enough money for the down payment. Being financially prepared when you decide to purchase a home would be a big help.
Kate @ Money Propeller recently posted…Anyone Want to Split $35M With Me? Dreaming of Winning the Lotto
When we bought our house four years ago, we used $10K from my Roth IRA (now that I know more about finances I wouldn’t do it again but it worked for us) and my husband had $20K+ in a “high interest” savings account that required a $10K limit and limited withdrawals/month. When we start saving for our “forever home” which hopefully we will start saving in ~2 years and will purchase ~10 years, we will save in a brokerage account.
Nichole @Budget Loving Military Wife recently posted…$10 OFF Groupon Deal on Facials and Massages!
It is a good idea to get pre-approved for a mortgage of any type your realtor will be able to recommend someone to you or you can speak to your bank to see if they can help you through the process.
Thank you for sharing such a wonderful post. I learned a lot from it specially from the commenters. Hoping to see more of your great post here on your blog.