Okay, so I'm planning on buying my first house in the Spring of 2009. Between now and then I am going to aggressively save money for the down payment. The question is, where do I keep that money between now and then? I have a 401k, a Roth IRA, a brokerage account, and regular bank accounts. It doesn't go in the 401k, obviously. It also doesn't go into a savings account due to the low interest rate. So that leaves my Roth IRA or my personal brokerage account. I know that with a Roth IRA I can make a penalty free withdrawal for a first time home purchase, but despite having read and read about this, I'm not very confident that I understand all the details. Due to the short time horizon, I'll probably just be keeping the money in a money market account within either of the two accounts so the gains should be minimal. I would assume that I will have to do some extra paperwork or tax work to avoid the early withdrawal penalty. Will it be worth this extra trouble to avoid paying taxes on what will be fairly small gains? Are there other tax advantages that I'm not considering? Are there other restrictions with the Roth IRA that I'm not considering? Any clarification or advice would be greatly appreciated.
A standard Money Market account is fine. You want flexibility, so no CD's, and you're not at a point where you can risk the money, so the stock market is out. ING Direct and Paypal often have pretty competitive rates.
Ian is right. Just open up an ING account. Forget about all this Roth IRA nonsense, Roth accounts are for long term money. Making short term deposits into a Roth is just going to cause you tax headaches at the end of the year.
I'm doint the samething u r doing, saving for a house. However my target is around the summer of 2010. This is what I'm doing with my money. 1- I have a regular saving/checking account with Chase just to handle all my financial responsabilities each month. 2- I have a 401k account, but forget it about it. I will not touch that money until I'm 59 at least. I put 10,000 to open the account last year. 3- I have a savings account with ING bank, just to save for my traveling. 4- I have an investing account with Transamerica. I save at least 1,000 a month with them. I will not see what I have, even if the market goes down. If you keep looking too much, u will get fed up. I'm surre I will have enough for my down payment and some repairs. Good luck.
Money Market is the best place. They generally have a decent interest rate, are relatively safe, and are extremely liquid. Stay away from putting it into retirement accounts. Although the IRS allows for the withdrawal, it is more hassle than it is worth especially if you get audited.
I am pretty much in the same position as you. I have returned from central america and in 5/6 years we are going to try to buy a house. Hopefully when my girlfriend returns from the Peace Corps we are looking in NC or VA. I have a 401 with TIAA Creff that I need to check up on. I do have a question. I havwe 1000$ that I wna tot invest. I am not going ot touch it for 2 years. Money Market or CD? FOrgive me, I ma rather naive in this category.
Don't buy a house unless you have 20% down and can afford your payments even if the value of the house drops 20% (which is very likely in many markets). In fact, I doubt you would be able to get financing in today's environment.
Shouldn't you pay off the cc debt immediately and avoid carrying a balance while building up your emergency fund? I came to this thread/board b/c I'm in the same boat (goal purchase date: winter 2009), but then got thrown for a loop when our dream house came back on the market after a 2nd failed escrow and at a 20% reduced price: $425k down to $345k. This week I was going to go ahead and get pre-approved and make a formal bid, but then just in the last couple of days, several similar houses opened up for short-sales (already approved) and at $275-305k. They're not as nice, though. My mortgage broker is convinced we'd get a loan, unlike the last 2 ppl that tried to purchase the specific house. Arrrrggggghhhhh. Frustrating. [/rant]
If you need more help with buying a place, it would be worth looking online for information to assist you - this one on really good info from the mortgage advice shop and this site on types of mortgage. Hope these are helpful to you!
1. Take 7500 emergency fund and pay off 3500 CC debt immediately. 2. Build emergency fund back up to the levels you think you need (usually 6 months expenses) 3. When done, then begin saving for house.
Quick update: Closing on a duplex next week. Woo hoo. W/ interest rates so friggin' low and the market underpriced (extremely conservative appraisals out there galore), I just couldn't resist. The duplex I'm buying rents out currently for $4200/mo (leased through April 2010) but got appraised as if it were bringing in $3300/mo b/c "rents have fallen due to over-supply" and they comped out to far lesser properties. So they took 25% off our rent, but used the leases for places renting for nearly $1000 less but without the 25% correction! I'm getting the place for 67% off asking price and for 33% of what it went out on the market in August of 2006 at the height. I'm getting a f***ing steal. I'll be living in one house and renting out the other; the renters are paying my mortgage. Completely. Plus insurance. As in, I'm paying the property taxes. That's it. Would love to get an update from others...
When you do that calculation, be sure that you factor in the duplex only being rented for 10 months a year. Be sure you can pay two months worth of the full mortgage. I'm sure that why they did the appraisal with a lower number, to take into account the vacancy.
I've been uber conservative w/ the numbers, projecting 9 months rental. We're also only qualifying on one income and using the 2nd income for buffer and to pay back our parents quickly. We weren't going to buy for another year but the timing was too good. The main reason why the appraisal came in so low is b/c on the other side of the highway there's a TON of foreclosures, which has dragged down the overall market. That and the heavy % of speculators who got their clocks cleaned in the downfall. But actually more than anything it's that our area is an "area of concern" for the feds and the mortgage industry. They really are over-correcting after years of sketchy practices. Bottom-line is that one young professional -- a friggin' assistant professor, not a lawyer or doctor -- should not be able to buy in one of the city's nicest areas. Eventually it'll get worked out, but for now... man there are some steals out there!