{ "media_type": "text", "post_content": "Whats the best way to save money for downpayment? Atm I invest every bit of my savings into stocks and 401K. It seems like to save upto 200K for 20% down would take me another ~2 years.", "post_id": "615b93361e995000224ce142", "reply_count": 27, "vote_count": 2, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter", "feed_type": "bowl" }

Whats the best way to save money for downpayment? Atm I invest every bit of my savings into stocks and 401K. It seems like to save upto 200K for 20% down would take me another ~2 years.

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I've been scorned about this in the bowl before, but I think 401k loans are a good option. Market returns have been ridiculous the past 10+ years. Nothing wrong with taking some off the table and diversifying your overall asset portfolio, including if you want to own the roof over your head.

Then you'll be paying your future self back at like 3% interest during a time of serious uncertainty in equity markets.

Who knows - maybe it'll end up being a more optimal path for overall wealth creation even.

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Need 20% in most cases to avoid PMI, yes some banks allow 10%, etc.

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Could buy a cheaper house or put down a smaller down payment

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You don’t need 20% but two years is not a bad idea with this inflated housing market. Let it settle down while you build up $.

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Given that interest rates are likely to increase over the next year and that you will use the money in the next 2 years, I would do an ultra short term bond fund or bank CD. There are some risk limited equity funds that use options to insure against downside risk but those still could lose 10%.

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Thank you! This is what I was looking for :)

Put a smaller down payment duh. I’m assuming you want a million dollar house. Lenders do allow 10% jumbo loans with no PMI.

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Any advice on these jumbo loans?

Currently in a conventional with PMI. Not sure where I am in terms of equity % right now since the property value appreciated. Current loan terms require 20% equity to drop PMI. Would def consider refi at 10% equity without PMI if possible so any info on these jumbo loans would be helpful.

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How much of your stock portfolio has been held for more than a year? Perhaps selling some stock and putting it into a house and just paying the LT cap gains will get you the house you want sooner.

If not, I’d say saving $100k per year towards a million dollar house still puts you ahead of most people. Waiting 2 years to get into that house doesn’t sound like a terrible plan…

I guess my question is where do i save/short term invest money if I plan on accumulating ~200K for down payment in next 2 years. I don’t want to invest in stocks and liquidate it within a year. I prefer to hold stocks long term

Let’s make another implicit assumption explicit here - assuming the market does not tank.

You don’t need 20% for a down payment.

The housing market might be inflated but interest rates are still very low. What if housing prices fell 10% but interest rates went up 2%? Rising rates might cool prices but your monthly payment will stay about the same. Only cash buyers will win in that situation. If you will be in the house more than 5 years buy now. If prices dip, who cares, you still have the same house. Until you sell, the market value is irrelevant.

This x1000000

To clarify the question: which financial instrument is best suited to save down payment for a mortgage? I don’t plan on selling my stocks any time soon. And I don’t think simply letting cash sit in savings account is wise either.

Bond fund or HYSA. Neither will give great returns but you’ll see some gains to at least match inflation, and your time horizon should be short enough that it won’t be a huge opportunity cost to your portfolio.

I don’t know the exact term for it, or much about it, but there is a loophole where you can take it out of your 401k (without early withdrawal penalties) when the time comes, so keep stuffing your 401k. I will come back here when I find the actual term for it

401k loans for a primary residence can only be taken up to $50k or half of the 401k balance, whichever is less. If OP is trying to source $200k in down payment money, this barely makes a dent.

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