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Is my downpayment fund too big?

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  • Is my downpayment fund too big?

    I'm 3.5 years out of residency and have been steadily saving into a downpayment fund. House prices in CA have continued to rise past the astronomical levels I already thought were too high in 2017 so I kept deferring getting into anything. Our town now has had an even bigger rush post COVID as we are a beautiful place to live just a few hours from the major cities, with another 10%+ cost increase for 2020 that blows my mind. Homes we are interested in are now regularly in the 1.5-2MM range.

    Over the past few years I've managed to accumulate a 400k down payment in anticipation of eventually having to bite the bullet into this crazy market at some point and would be ready to do the traditional 20% down on a nice 2MM doctor home if needed. In the process I've missed out on some pretty serious gains rather than investing that money.

    We currently live in a nice 1000 sf apartment close to family, lots of open space. Nothing too fancy, very affordable rent (family owned and well below market rent) and are totally happy and able to stay here at least for the next few years- mainly limited by possible children in the future and need for space.

    Would it be crazy to DCA most of that downpayment into the market, maybe holding back 100k or so? Worst case we pull some of the money out from a taxable account to buy (hopefully not in a terrible down market)? We would likely have good access to physician mortgage options with little down if needed with excellent credit and no debt.

  • #2
    Kids first. House second. Consider moving. If not possible then do some hard math on that apartment vs home purchase. You might be surprised.


    • #3
      good job on saving.
      i would take this one step at a time, you don't have kids yet and you enjoy where you live. where you live has allowed you to save 400k in 3.5 years so it's not like it isn't working out for you.
      that said, it's a tough call. obviously you don't want to DCA all of this into the market and then decide you have to have a house later this year.
      1000 sq ft is going to be very hard with a baby, people do it all over and with even less but it won't be fun.
      it sounds like you need to have a real turkey talk on kids -- yes/no and if so then when?


      • #4
        I would vote to have the discussion with your spouse and make a plan for when you want to have kids. The buy/rent discussion will have answer when that is solved. Then you’ll know what to do.


        • #5
          Also have to look at the family rent equation -- you're a drag on that side by staying yet packing away 80k a year on a subsidy. -- just be aware of that part....and probably will tie into the '---hey where are the grandkids question play with get-new-home-for-grandkids and visiting grandparents talk.

          So no, fund isn't too big as it allows you options. have those chats with the spouse and make a plan.


          • #6
            Thanks for the advice. Seems crazy to keep in cash but maybe I’ll be lucky and see a big decline in the market. Optionally is its own benefit though.


            • #7
              Hard to think of a 1000sqft apt as having a ton of space but if it fits your needs for now then stick with it. I would not buy out of housing market FOMO. Buy when you need too. Wait for that first kid or at least pregnancy. Having a newborn in an apartment is not a big deal so that would give you 1-2 years to find a place.


              • #8
                You could always consider a physician loan if you don't want to make a large down payment. Wouldn't be a bad idea tbh, given the historically low interest rates. Although I'm not sure if there are very large physician loans available (1M+).


                • #9
                  You have 400k down payment saved for a house which you have put off buying and which now costs 1.5-2M and your deposit is in cash.

                  You have not bought the house and now rationalise you might buy one in 3 or 4 years.

                  You are wondering if you should allocate the cash to equities now because you didn’t buy the house earlier now that it is up a bit since April.

                  Do you have a plan ? If so, what was your original plan?

                  Are you actually short a 2M house?

                  There are a number of options and potential outcomes.
                  I can imagine 2 and there are probably many others:
                  1: You buy the 2M house and it falls to 1M in the following 4 years.
                  2. You don’t buy the 2M house and you end up buying it for 4M in 4 years.

                  I once deferred buying a house for 1.3M and ended up buying something similar for 2.5M four years later.

                  A hot housing market can appreciate faster than most can save. It will blow to smithereens whatever return you can get on your 400k deposit. How you invest your deposit is a bit like shifting deck chairs on the titanic if that happens. If you’re really unlucky, the investment you put the deposit in might go down when the house appreciates through the roof.

                  Difficult choices, idk the right answer, depends on the person.

                  Good luck!