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Saving for a downpayment
I'm new here and I was wondering what the best way to go about saving up a big downpayment is, or how did you do it? I don't mean budgeting, I mean did you keep all of your money in savings, did you invest it (stocks, CDs, etc?), or something else? FI and I are in a good place financially (no debt, both have good incomes, maxing out our 401k contributions), and we have some money in savings (more than 6 month expenses). However, I'm stuck on what we should do from here. It's a HCOL area with a big range of house prices - a 2BR house in a nice part of town can easily top a million, but a 2-3BR in a bad/less nice neighborhood could be bought for 400k or maybe less. We have a couple of options, the way I see it: 1. Keep renting and save money, maybe invest with CDs (low risk) to not lose too much to inflation, then buy a nice house in 5-15 years. 2. Buy a starter house soon and upgrade to our dream house 5-15 years later. 3. Buy a fixer-upper in a nice part of town soon and upgrade later.
I like option 3 because I feel like even with the housing market being unpredictable, if we can fix up the house so that it's nicer than when we bought it we could either turn a profit or break even. We don't have kids and don't plan on having any for the next 8-10 years, so we don't need a lot of space, but I just don't like that we're not building equity. FI and I also agree that we're not buying a house unless we can pay 20% down, we couldn't imagine risking paying less. What do you think?
Re: Saving for a downpayment
We're saving to buy an investment property right now. We have our checking and savings in one bank where we put regular monthly savings into. But, then we have another savings account at a credit union that put monthly savings into for the investment house. We do not have an ATM card of anything for this account. It seems to work for us.
And I like option 3 best too.
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Not all aspects of a "fixer-upper" are things you can leave until later. Don't just assume that they're cosmetic or things you can live with. They could be structural, functional or safety concerns.
I saved until I was able to put a good down payment on the highest / best option, and then was able to do less if I wanted to, not because my options were limited.
I am not sure about the three options you presented. I'm not a fan of #3 because as a PP stated, some things cannot wait. It would really depend on your financial state after the purchase.
If you are going to move in 5 years, then option two isn't a wise idea.
I say just keep renting and saving your money. We were in an apartment that was extremely affordable and we were both able to save a lot of money each month. In just over a year we had over $20k cash for our down payment... plus if you're a first time home buyer you can take up to $10k out of your IRA towards a house, which we also did.
Renting is definitely not an investment, but if you can find an affordable place where you can work on your savings it's well worth it.
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Well said.
This is what we've done for the past five years. We originally made the choice because we knew we'd be moving out of state within 5-6 years, but from a financial standpoint, I'm so glad we did it this way. Now we've got either a large (60-70%) down payment, or enough to buy a fixer-upper in cash and then plenty to do renovations with. We'll start seriously looking in a few months.
Thanks for the advice. It probably is best to just save, it's just hard time to wrap my brain around getting/having $200k in savings (the down payment we'd need, give or take $50k). My brain knows that if we save diligently, we can get that in 5 years (give or take), but part of me is so confused because that's twice what my parents' house is worth (I grew up in LCOL area, now live HCOL), so my sense of money is skewed. Anyway, our rent is actually similar to what a mortgage payment on a 400k house would be, but if we keep renting we get to stay in a nicer neighborhood.