Hypothetical money question

[DCFife]

If you had $200k in cash and wanted to buy a home that costs $400k, how much would you put down on the home? What would you do with any amount that you didn't put down?

 

[mugs]

Depends on the interest rate I could get... if it's low enough, I'd put exactly 20% down (and invest [most of] the rest).

 

[DCFife]

Originally posted by: mugs
Depends on the interest rate I could get... if it's low enough, I'd put exactly 20% down.

For the sake of argument, say the interest rate is 6%.

What would you do with the remaining $120k (- closing costs)?

 

[imported_LoKe]

Furnish said house, invest the rest in some decent funds...nothing major incase some later use for said money is required.

 

[mugs]

Originally posted by: DCFife
For the sake of argument, say the interest rate is 6%.

What would you do with the remaining $120k (- closing costs)?

I'm not an expert on investing, I'm really not the person to ask. But I suspect with well-diversified investments, it'd be hard to get less than a 6% return on your money. And if you ever lose your job, you'll still have to make that mortgage payment. It's much easier to stay afloat when you don't have all of your money tied up in the house. If you can't find a job fast enough, you could end up having to sell the house for less than it's worth or risk foreclosure.

 

[DaveSimmons]

At 6%, you'll historically do much better with a stock index-based mutual fund like vanguard's VFINX. So I'd only put down 20-25% and use the rest as follows:

First, I'd make sure I had 3-4 months worth of mortgage and other living expenses at INGDirect.com or Emigrant.

Second, I'd fully fund tax-sheltered retirement accounts, Roth IRA $4K each for 2005 and 2006 to start. I'd also look into tax-sheltered college savings if I had kids.

Finally, a regular (non-sheltered) brokerage account at Vanguard, I'd put most of the money into stock index based funds unless you are over 50. Remember you can sell shares from this account without any extra tax penalties if a real emergency comes up and the money at INGDirect gets used up.

 

[mugs]

Originally posted by: DaveSimmons
At 6%, you'll historically do much better with a stock index-based mutual fund like vanguard's VFINX. So I'd only put down 20-25% and use the rest as follows:

First, I'd make sure I had 3-4 months worth of mortgage and other living expenses at INGDirect.com or Emigrant.

Second, I'd fully fund tax-sheltered retirement accounts, Roth IRA $4K each for 2005 and 2006 to start. I'd also look into tax-sheltered college savings if I had kids.

Finally, a regular (non-sheltered) brokerage account at Vanguard, I'd put most of the money into stock index based funds unless you are over 50.

If your employer matches 401k, definitely make sure your contribution level is enough to get the full match too. Free money! That goes before IRA.

 

[DaveSimmons]

Originally posted by: mugs
If your employer matches 401k, definitely make sure your contribution level is enough to get the full match too. Free money! That goes before IRA.

Definitely! Also if you're married be sure both persons max their 401k (up to employer matching) and their Roth IRAs.

 

[Lonyo]

Put down 20%, pay off any debts (if you had any, thought with 200k cash I would assume you;ve paid them off already....?)
Then if you can find something with a better rate than your loan, invest.

 

[ponyo]

I would put minimum 20% down. If you have good income and feel good about your job security and have other investments, I would put down the entire 200k.

When I purchased my house I was in a similar situation. I ended up putting down 50% and leaving about 6 months of savings. I don't regret the decision one bit as I've built my investments and savings back up. Now my dilemma is whether to pay off the house in full or keep my investments.

If you want maximum flexibility, it wouldn't be good idea to have all your money invested on your house.

Oh definitely pay off any other high interest debt like CC first.

 

[mugs]

Originally posted by: Naustica

Oh definitely pay off any other high interest debt like CC first.

Jeez, I'd hope if he's sitting on $200k he doesn't have any CC debt! Unless the $200k came from equity in his previous house...

 

[DCFife]

Originally posted by: DaveSimmons

Originally posted by: mugs
If your employer matches 401k, definitely make sure your contribution level is enough to get the full match too. Free money! That goes before IRA.

Definitely! Also if you're married be sure both persons max their 401k (up to employer matching) and their Roth IRAs.

The wife and I both put 10% into our respective 401(k)'s with company match to 4%. We couldn't put any money into our IRA's this year because we exceeded the income requirements, but we have new jobs and are making less money now and will be able to start maxing the IRA's again in 2006.

 

[DCFife]

Originally posted by: mugs

Originally posted by: Naustica

Oh definitely pay off any other high interest debt like CC first.

Jeez, I'd hope if he's sitting on $200k he doesn't have any CC debt! Unless the $200k came from equity in his previous house...

LOL! No CC debt. The wife and I saved $200k over the last 3 years in addition to paying off two car loans and a school loan.

 

[DCFife]

Originally posted by: Naustica
I would put minimum 20% down. If you have good income and feel good about your job security and have other investments, I would put down the entire 200k.

When I purchased my house I was in a similar situation. I ended up putting down 50% and leaving about 6 months of savings. I don't regret the decision one bit as I've built my investments and savings back up. Now my dilemma is whether to pay off the house in full or keep my investments.

If you want maximum flexibility, it wouldn't be good idea to have all your money invested on your house.

Oh definitely pay off any other high interest debt like CC first.

My credit union has no prepayment penalties on a mortgage so I was thinking about putting down about half of the cash ($100k) and using some of the remainder to get those little things that people want in a new home, i.e. furniture. Every year I'd throw some extra money at the mortgage and get it paid off in no more than 10 years. I've grown accustomed to having plenty of extra cash for a rainy day and while the wife and I are both govt contractors on long-term contracts you never know when the unexpected will happen.

 

[ponyo]

Originally posted by: DCFife

Originally posted by: Naustica
I would put minimum 20% down. If you have good income and feel good about your job security and have other investments, I would put down the entire 200k.

When I purchased my house I was in a similar situation. I ended up putting down 50% and leaving about 6 months of savings. I don't regret the decision one bit as I've built my investments and savings back up. Now my dilemma is whether to pay off the house in full or keep my investments.

If you want maximum flexibility, it wouldn't be good idea to have all your money invested on your house.

Oh definitely pay off any other high interest debt like CC first.

My credit union has no prepayment penalties on a mortgage so I was thinking about putting down about half of the cash ($100k) and using some of the remainder to get those little things that people want in a new home, i.e. furniture. Every year I'd throw some extra money at the mortgage and get it paid off in no more than 10 years. I've grown accustomed to having plenty of extra cash for a rainy day and while the wife and I are both govt contractors on long-term contracts you never know when the unexpected will happen.

Sounds like a solid plan to me. I'm also leaning towards sending 25% of my outstanding balance on my mortgage. That will allow me to keep all my investments and pay down the mortgage some more. I also work as a contractor but in the private sector. So I know firsthand about the unexpected and saving for a rainy day.

 

[flot]

Originally posted by: DCFife
If you had $200k in cash and wanted to buy a home that costs $400k, how much would you put down on the home? What would you do with any amount that you didn't put down?

You left out a very important detail, which is how comfortable you and your wife will be paying the mortage on either $200,000, or $360,000. That should play a large part here. Also remember that you can ALWAYS take out a loan against the equity in your home, and interest on that loan is typically tax deductable.