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What Would You Do? Down Payment on Home

1,409 Views | 5 Replies | Last: 6 yr ago by Endo Ag
Rowdie15
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AG
Wife and I are mid-20's looking to buy a home within the next 5 years. Looking for opinions on how you would plan for down payment on a home. Specifically, I have a mutual fund that I am trying to figure out what to do with.

Mutual fund is EQTX with expense ratio of .76%. Have approx. $17,000 in it. I have heard that if you are planning on spending money within the next 5 years, you should pull out of the market to mitigate potential for loss. What is your stance on this?

For context; we also have roughly $35,000 in a money market account through Ally that serves as an emegency fund/down payment fund.

What would you do with the mutual fund?

Any guidance/thoughts are welcomed! Can provide any other details that would be helpful as well.
Wife is an Aggie
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Your EF & DP shouldn't be mixed together. If anything, you will want to build up your EF before you buy bc generally your expenses will also increase once you are into a mortgage. Last thing you want to do is blow your EF on your DP and then have no cash reserves after closing.

You don't really give us enough to help answer. In regards to the mutual fund of $17k, if 3 yrs from now that balance drops to $9k how would you feel? If that makes you sick maybe you move it to something more conservative. For the record I didn't even take the time to look up the ticker.

What (price range) type of homes are you expecting to purchase? How much cash are you able to save right now each month?

A little more detail would probably help others chip in.
Blanco Ag
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Maintain the 35k in the MM for liquidity/emergency fund.

Split the other account and put half toward your home. It's not like you are blowing that money - it's just moving funds within your net worth buckets.
Rowdie15
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Wife is an Aggie said:

Your EF & DP shouldn't be mixed together. If anything, you will want to build up your EF before you buy bc generally your expenses will also increase once you are into a mortgage. Last thing you want to do is blow your EF on your DP and then have no cash reserves after closing.

You don't really give us enough to help answer. In regards to the mutual fund of $17k, if 3 yrs from now that balance drops to $9k how would you feel? If that makes you sick maybe you move it to something more conservative. For the record I didn't even take the time to look up the ticker.

What (price range) type of homes are you expecting to purchase? How much cash are you able to save right now each month?

A little more detail would probably help others chip in.
Thanks for this....a bit more info:
  • Looking for a home around 300,000
  • Combined income of 160
  • No Debt
  • Could save $1800/month for a down payment...could save more if necessary
  • Would not kill us if the mutual fund lost half like mentioned above
Gigemags382
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Rowdie15 said:

Wife is an Aggie said:

Your EF & DP shouldn't be mixed together. If anything, you will want to build up your EF before you buy bc generally your expenses will also increase once you are into a mortgage. Last thing you want to do is blow your EF on your DP and then have no cash reserves after closing.

You don't really give us enough to help answer. In regards to the mutual fund of $17k, if 3 yrs from now that balance drops to $9k how would you feel? If that makes you sick maybe you move it to something more conservative. For the record I didn't even take the time to look up the ticker.

What (price range) type of homes are you expecting to purchase? How much cash are you able to save right now each month?

A little more detail would probably help others chip in.
Thanks for this....a bit more info:
  • Looking for a home around 300,000
  • Combined income of 160
  • No Debt
  • Could save $1800/month for a down payment...could save more if necessary
  • Would not kill us if the mutual fund lost half like mentioned above


At $1800/month savings rate, you could save a 20% down payment on a $300,000 home in just under 3 years. So with a 5 year time horizon, if you really are intending on saving $1800/month going forward, your current savings may not even be necessary for a down payment. If that's the case, and you'd still be able to sleep at night if your current fund loses 50%, I'd probably keep it in a fund with a moderate risk level.

If it were me, I'd probably find a fund with a lower expense ratio.
Bocephus
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Put the $1800 into a savings account every month for 34 months and then go buy your home. In 34 months you will be able to buy a much nicer home for $300K because the housing market will have collapsed again. Leave your mutual fund alone. You and your wife are to be congratulated on your ability to save money.
Endo Ag
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What is your risk tolerance? What is the penalty if the market craps itself at the worst possible time?

If you are tolerant, and want the money for a down payment rather than NEED the money for a down payment, then keep it in the market. IF you cannot stomach market volatility or the penalty of a poorly timed drop would be high, then go conservative.

The last time I bought a house, I pulled my money out of the market the week I made an offer on a house. I had enough that my plans wouldn't have changed much, and if they had, my life would have gone on just fine. ie I would have rented the very nice house I was in for a while longer. I was obviously tolerant of risk.

In the end, I enjoyed significant market growth in that last 18 months. The probability of the market in the short term is the same as the market in the long term, but the swings are much greater. Your $17k could become $13k or $21k, but odds are it will be about $18k after a year. If it went to $13k, what does that do to you and your plans?
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