Where to Put Down Payment Savings?

[beastmode]

HCOL area. Need to save ~300K for down payment and plan to buy in 3/4 years.

Looked into online savings account, CDs, and money market funds. Everything is around ~1-1.5%. Any advice from homeowners?

Thanks

 

[hightower]

Until the federal reserve raises interest rates significantly, 1% is about as good as you're going to find.  Park it in an Ally Savings account for 1%, that way its available any time you need it.  A CD would give you better rates (although barely better), but could charge you for withdrawing early.  Most money market funds are less than 1% interest that I've seen.

[jfoxcpacfp]

beastmode wrote:

HCOL area. Need to save ~300K for down payment and plan to buy in 3/4 years.

Looked into online savings account, CDs, and money market funds. Everything is around ~1-1.5%. Any advice from homeowners?

Thanks

 

Click to expand...

Do you already have the $300k or are you gradually saving?

• If already have, buy high-quality corporate bonds timed to mature at date of need.


• If not, options listed above are the best you can do at this time OR work out a family loan for a better rate of interest. Obviously need to have collateral and legal paperwork.

See When Low Interest Rates Are OK

[VagabondMD]

Along the lines of what Ms. Turner has suggested, you could purchase the ishares bullet muni etf for 2020 (https://www.ishares.com/us/products/269394/IBMI) and get a tax equivalent yield of approximately 2.25%, with minimal risk. The corporate equivalent has a similar yield (IBDL).

That said, if it were me, I would just do the Ally savings account. Much simpler, no risk, no fluctuation in value between now and then, etc.

[DMFA]

Do you have $75,000 - $100,000 to save over the next few years that wouldn't be better placed in a tax-advantaged retirement account or the elimination of higher-interest debts?  If so, well done.

If you're OK with being a little bit risky with it, consider a taxable brokerage account with a 50/50 allocation tax-managed fund like VTMFX; it's what I use as a relatively easily-liquidatable reserve beyond my true emergency fund (which is in a classic savings acct with my main checking bank, available immediately).  It uses municipal bonds and low-dividend stocks to minimize its tax burden.  Do be aware that, just like any investment, you *do* risk losing capital.  I'm personally OK with the risk I take on by having equities there since I don't have a specific use for it, but will probably end up up-sizing my house in the next few years, buying a car, etc...

Other options are to buy individual bonds (not bond funds) like Johanna recommended, municipal bond funds like VWIUX, or the non-risk but minimal-gain online savings account (e.g. Ally).  The simplest and least risk is the online 1% savings.

[Golfing Doc]

We have the same issue, albeit with a much smaller sum of money, and put it in a bank of internet checking account - 1.25% interest. Catch is you have to use debit card 15 times a month which hasn't been hard. Just use it for gas, groceries, drug store purchases.

[adventure]

... Instead of waiting 3-4 years, have you considered getting a non-confirming loan? These are often (but not always) marketed as "doctor" loans.

 

Several lenders are currently lending 95% (for "jumbo" sized (~417k most places, 625k max in HCOL's) loans).

 

Why do you want to wait 3-4 years, if you could get something sooner? Do the numbers & data show you'd save more (long term) by renting, saving, then buying? If not, are you otherwise able/interested in purchasing sooner rather than later?

 

[DMFA]

I'm so non-conformist, I'm not gonna non-conform with you guys.

If you do consider a physician loan, *if* it is an acceptable situation for you to buy now (i.e. you will certainly be there 5 years or longer), WCI has written a few informational pieces about them:

• The Doctor Mortgage Loan


• Best Lenders for Doctor Mortgage Loans (lenders by state)


• My Experience Pursuing a Physician Mortgage Loan


• Why Physician Home Loans Fail (book review)

I personally prefer down payments so as to avoid "negative equity" situations (esp if you have to roll in closing costs with the loan), but there are ways still to get decent interest without PMI with little down.

Renting is not the end of the world; in many situations it's the best thing to do, even if it might cost more than your prin + int + tax + ins, for flexibility and limited liability.  However, *if* you're otherwise in a good situation to buy and just don't have 20% down, it *can* be a good option.