Best way to save for a mortgage down payment?

We've been in the current house almost 2.5 years. But we know this isn't our "forever" home by any stretch of the imagination. 

Within the next 4-6 months, I'll be paying some things off and our escrow will be caught up (asphyxiate on a satchel of richards US Bank!). So I should be able to get back to the spot of dropping $1k+ per month into savings/money market/etc. 

The idea being in the next 3-5 years, we will be ready to sell the house and purchase something a bit more sq ft, a 3rd car garage, and a larger yard. 

What would be your vessel of choice for saving that money?

If you lack self control, then a separate savings account.  Even a classic savings account at your bank, or better yet, a bank somewhere else where access is not that easy. Next town over?  Put money in and leave it there.  If you have self control, then just put it wherever you put the rest of your money and don't touch it.

z31maniac said:

(asphyxiate on a satchel of richards US Bank!)

God I hope this a new profanity filter

+1 to put it wherever you put everything else.  I just use a taxable investment account with Fidelity.  Balance between stocks & bonds to achieve your desired level of risk.

I put mine in my company stock to take advantage of the ESPP; once it is vested I sell and move it to VTSAX. If you're worried the market will tank in 3 years, I'd have it in cash or bonds. Normally I poo-poo the fear of a downturn, but I'd only poo-poo it here if you're ok with living in your current house through the potential downturn. 

I also would ask what equity you have in your current house. Probably will want to use that as a down payment. 

Also I would only save what you need for the downpayment in cash/bonds.  1k/month will buy you 180k more house than you currently have in 3 years, 300k in 5 years

ProDarwin said:

Also I would only save what you need for the downpayment in cash/bonds.

PD, not sure I'm following here... Are you saying keep the downpayment savings in cash/bonds? If so, I would generally agree. But I kept reading it to say "The only cash/bonds savings you should have is for the downpayment", which doesn't sound quite right as you should at least SOME emergency fund in cash/bonds as well.

ProDarwin said:

 1k/month will buy you 180k more house than you currently have in 3 years, 300k in 5 years

Assuming this is just a straight $1,000*n/0.2 calculation, where n is the number of months? If so, a better way to say it may be "Each $1,000 that you save buys you $5,000 more house". 

Not sure why, but your phrasing had me confused... Maybe I are just stoopid.

What  I was saying is if you are saving into cash/bonds, don't oversave into cash bonds.  If you are putting away $36-60k and you already own a house, you likely don't need that much for a downpayment.

mtn said:.

Not sure why, but your phrasing had me confused... Maybe I are just stoopid.

I only phrased it that way because OP specifically said $1k/month and 3-5 years.

Dr. Hess said:

If you lack self control, then a separate savings account.  Even a classic savings account at your bank, or better yet, a bank somewhere else where access is not that easy. Next town over?  Put money in and leave it there.  If you have self control, then just put it wherever you put the rest of your money and don't touch it.

It's not lack of self-control, I wanted to check if there was a way to have that savings earn more than the basically nothing it gets in a normal savings account. 

In reply to z31maniac :

Is CD laddering still a thing? What's your current savings account rate?

The only other thing that I can think of that'd give you an actual return compared to 0.05% saving accounts are IRAs, but as I just learned in the other money thread from today, you'd have to wait a bit to even use it.

mtn said:

I also would ask what equity you have in your current house. Probably will want to use that as a down payment. 

How does that work? 

To use whatever equity is in the house means selling it, waiting for closing, then using that to apply to loan for another property........meaning I need to rent inbetween? 

I ask because I don't know. My last house I just told my ex-wife to keep and refinance into just her name and she could buy out the difference on some shared debt. So I've never had to sell one house while looking for another and try to get those time frames to match up for both parties.

FuzzWuzzy said:

In reply to z31maniac :

Is CD laddering still a thing? What's your current savings account rate?

The only other thing that I can think of that'd give you an actual return compared to 0.05% saving accounts are IRAs, but as I just learned in the other money thread from today, you'd have to wait a bit to even use it.

0.10% on the savings. IE, losing money compared to inflation. 

The ESPP idea is intriguing, I need to see what the fee structure is for selling them. We get a 5% discount, so that's free money. I've seen it mentioned elsewhere about people pulling from the 401k to make a downpayment, but that doesn't sound like a good idea.

z31maniac said:

The ESPP idea is intriguing, I need to see what the fee structure is for selling them. We get a 5% discount, so that's free money. I've seen it mentioned elsewhere about people pulling from the 401k to make a downpayment, but that doesn't sound like a good idea.

That will depend on your ESPP. At my prior company, the ESPP was actually just the company match on our 401k. So not really an ESPP, and not really helpful for this situation.

At my current company, you can direct up to 15% of your paycheck into company stock. After holding for a year, they'll match 25% your contribution - so if you contribute $100 in January 2020, in January 2021 they'll contribute $25. This is all in taxable accounts, it literally is all managed through my Fidelity account.

z31maniac said:

mtn said:

I also would ask what equity you have in your current house. Probably will want to use that as a down payment. 

How does that work? 

To use whatever equity is in the house means selling it, waiting for closing, then using that to apply to loan for another property........meaning I need to rent inbetween? 

I ask because I don't know. My last house I just told my ex-wife to keep and refinance into just her name and she could buy out the difference on some shared debt. So I've never had to sell one house while looking for another and try to get those time frames to match up for both parties.

2 ways: 1, either buy the house contingent on selling yours, or 2, cash-out refinance. 

I dated a girl that lived at home and saved all her money as she worked full time.  Then I married her and we put $20,000 down on a starter home.  

Is that an option for ya?

In reply to z31maniac :

Try stepping out of the box.  Do you know any barbers, hairdressers, bartenders?  People talk to those people and tell them lots of private stuff. Like who's Declaring bankruptcy, Like who's getting a divorce, who's lost their job, who's being downsized or let go etc.  

You can help them and maybe yourself.  Often those people are one payment from foreclosure which will severely damage their credit rating.  
Banks usually lose money on a foreclosure they might be happy to let you take over the loan if you can work out a payment program to make the loan current.  
The owner will appreciate not having that foreclosure on their record thus keeping them in the market when they get back on their feet.  
The actual Win -Win solution.  
None of this is easy.  Since there is no commission realitors won't help.  Banks can't  give you the list of potential deadbeats. Only the group I mentioned above.  ( maybe a few others) 

In reply to z31maniac :

One other possible solution. It's what I did to buy my current home.  I had a lot of equity in my old house so I used that as collateral on a bridge loan.  
The costs involved were punishing. But in hind sight cheap. It came close to $3300 for a 45 day fully secured loan. 

frenchyd said:

In reply to z31maniac :

Try stepping out of the box.  Do you know any barbers, hairdressers, bartenders?  People talk to those people and tell them lots of private stuff. Like who's Declaring bankruptcy, Like who's getting a divorce, who's lost their job, who's being downsized or let go etc.  

You can help them and maybe yourself.  Often those people are one payment from foreclosure which will severely damage their credit rating.  
Banks usually lose money on a foreclosure they might be happy to let you take over the loan if you can work out a payment program to make the loan current.  
The owner will appreciate not having that foreclosure on their record thus keeping them in the market when they get back on their feet.  
The actual Win -Win solution.  
None of this is easy.  Since there is no commission realitors won't help.  Banks can't  give you the list of potential deadbeats. Only the group I mentioned above.  ( maybe a few others) 

This has exactly nothing to do with my post. 

mtn said:

z31maniac said:

mtn said:

I also would ask what equity you have in your current house. Probably will want to use that as a down payment. 

How does that work? 

To use whatever equity is in the house means selling it, waiting for closing, then using that to apply to loan for another property........meaning I need to rent inbetween? 

I ask because I don't know. My last house I just told my ex-wife to keep and refinance into just her name and she could buy out the difference on some shared debt. So I've never had to sell one house while looking for another and try to get those time frames to match up for both parties.

2 ways: 1, either buy the house contingent on selling yours, or 2, cash-out refinance. 

1. But I still don't have access to that money until closing on my house, which means I have to be out of the house and my stuff somewhere else. How does that money become a downpayment on the loan that also needs to close that day? Or sooner? Not trying to be standoff-ish or anything, just never dealt with this scenario.
2. I suspect 2-5% of my mortgage, for the fees, to get at the equity probably wouldn't be worth it. 

In reply to z31maniac :

You claim a need to save a down payment?  The above shows another way to acquire the House you'd like without the need to save. 

ProDarwin said:

z31maniac said:

(asphyxiate on a satchel of richards US Bank!)

God I hope this a new profanity filter

 

+1 to put it wherever you put everything else.  I just use a taxable investment account with Fidelity.  Balance between stocks & bonds to achieve your desired level of risk.

Haha, it would be nice! We use that among friends instead of the more succinct way. 

frenchyd said:

In reply to z31maniac :

You claim a need to save a down payment?  The above shows another way to acquire the House you'd like without the need to save. 

I currently have a mortgage, I'm not renting. I'm not interested in dealing with bankruptcy/foreclosures, I'm not interested in buying something with a 203k loan, etc. 

Sure I don't HAVE to HAVE a down payment. I bought my current house with no downpayment on an FHA loan. The flip side is you get punished with PMI and a higher interest rate. 

So, I'll politely ask that if you don't have a suggestion for the original question, don't clog this thread up anymore with unrelated anecdotes.

The contingent offer works where you find a house you like, agree on a price, but everything is contingent on selling your current home.  So the sellers of the new place could be waiting much longer than the normal 1-2 months for you to get your ducks in a row.  If your old house sells quick, great!  If not, could get sticky.  This also tends to work better in soft housing markets where sellers are more motivated.  

Some companies let you take out a loan against your 401k.  If they don’t have a prepayment penalty, you could use this as a bridge loan for a couple months while you buy the new place, move, and sell the old one.  My company doesn’t even take it out of your 401k account, just uses it as collateral, so there’s no market timing issues to worry about.  

Other options are standard bridge loans, carry two mortgages for a couple months, or unsecured loan.  Good credit ratings can get unsecured loans in the 6-9% range currently. 

We kept ours in a high interest savings account. Both of our paychecks were divided into normal checking accounts (his and hers) and an equal amount from both of us dumped into the savings account. We have a 3rd checking account that is "shared" that we have automatic transfers set up for that push equal amounts every month for monthly bills that overage was used as an emergency fund. 

The nice thing about this is that for awhile at least, we both had "spend freely" accounts, and we also were going in equally on a house. 

We wanted to have 20% down a house approaching 400k even while carrying another home at 300k. The lenders were perplexed by this "are you going to keep both homes?" "No. We just want the flexibility of carrying both if we find a house we really like." 

Ultimately, we more or less did a contigency deal. With rates as low as they are, increases in savings, and making a slight profit on the sale of our old home, we paid $3,000 to move into a far nicer, more expensive neighborhood. 

Which is good, because the house still needs a lot of little things. 

My only thaught is to look at you current house and evaluate what needs to be done to either increase the value by investing in what you already own or at least make it more sale able so it sells fast and you may not make money but you will recoup what you invest and get a fast sale. 

z31maniac said:

Haha, it would be nice! We use that among friends instead of the more succinct way. 

I will do my best to make this phrase more popular