where/how would you invest house downpayment money?

[NoCreativity]

Either have a 20% + down payment or practically nothing at all.

Anything < 20% and you're getting an FHA loan with mandatory PMI (Insurance for the bank that you will pay your mortgage, so basically, a ~$50/monthly charge?) See: http://en.wikipedia.org/wiki/Private_Mortgage_Insurance

Anything > 20% and you can get a normal 30-Year mortgage and go without PMI (basically throwing money away).

FHA loans have their place. There's nothing better than a 3% APR financed home paying practically nothing month to month. Toss in your extra cash in investments to earn more than what you would gain by paying the loan off early. I'm still crying that I didn't refinance our 5% APR back in July when it was ~3.5%. Now it's back up to ~4.25% and it's not even worth the closing costs ='/

I think you may want to read up on FHA loans because pretty much everything you posted is outdated.

Rules changed mid last year and they severely screw you. You won't pay $50 a month for FHA MIP (FHA's version of PMI). It will be about .13% of the loan value per month for a minimum of 11 years. You also need to pay an up-front MIP payment equal to 1.75% of loan value. On a $200K house that's $260/month MIP and an up-front cost of $3500. Moral of the story: stay far, far away from FHA.

As to the OP, as already mentioned it depends on how rigid your time frame is. If it's definite that you want to buy in 5 years you have to go a little more conservative to make sure you preserve capital. If you are flexible on the 5 year plan you can take a little more risk.

 

[NutBucket]

Just because you have less than 20% down doesn't mean you're forced to go FHA. You can go conventional with many lenders (as mentioned) but you'll likely have a higher rate along with PMI. Of course this all contingent on loan to income ratio too.

 

[JTsyo]

hmm how about you place in into some kind of real estate fund. That way if the fund goes down, chances are house prices are going down too. This way your savings can scale with the industry you're interested in.

 

[poopaskoopa]

We kept it in an online savings account for easy access, so I'm sure it's not the most profitable move. Like others have said, you don't need 10% to get a loan, and we ended up using a chunk of the house savings here and there, just to get out of our old house(foundation(ouch!), painting, etc) so having money easily accessible was nice, even when the purchase of the next house wasn't exactly imminent.

 

[Shlong]

I just kept in online savings (ING now Capital One), easy to transfer to checkings and then wire the money for the downpayment (and other fees involved).

 

[gorcorps]

some credit unions offer 100% financing conventional loans with no PMI so this isn't true. i know because i have one of them (although i put 5% down).

I heard that, but I couldn't find any last March when I was looking. Obviously it's going to depend on the credit union but I wouldn't bank on this in all areas.

 

[NutBucket]

Agreed. Certainly not in SoCal I would think.

 

[BurnItDwn]

If you are thinking it's going to be 2-3 years before you buy, and you aren't in a particular hurry, I would consider a brokerage account.

Then, I would put everything into an index fund.
S&P 400 or Russell 2000 are two examples of funds that I would recommend.

These are high risk (mid or small company stock finds).

During a "bad year" they go down by A LOT . But, during good years, they go up fantastically well.

 

[purbeast0]

I heard that, but I couldn't find any last March when I was looking. Obviously it's going to depend on the credit union but I wouldn't bank on this in all areas.

i've heard (from people on this board) that smaller/local ones have done it. but i used navy federal, which is a national chain and all over the place. granted, it has some restrictions to get in to the union lol.

 

[nageov3t]

random necro because I didn't want to create a whole new thread...

but what is people's feelings towards something like 2-3 year savings bonds so that the money is at least keeping pace with inflation? (my only worry would be any complications that could arise if, say, we found the perfect house but the bonds were still months away from completion)

time table has probably moved up a bit since I created this thread, between my landlady/aunt's failing health and my boyfriend getting a $20k raise (currently using all the extra income to put towards paying down his student loans/high-interest car loan) so we're probably thinking 3 years before seriously house shopping rather than 4-5.

there are enough programs for first time home buyers that I probably don't *need* 20% down, but I'd still like to save as much money beforehand as possible (figuring that whatever money isn't put towards a down payment could go for paying for any immediate upgrades/fixes the house needs, especially stuff that would be easier to do before moving like refinishing the floors and painting)

 

[MrSquished]

don't forget closing costs. you need to have that cash ready for closing. in NJ closing costs are an everage of 2.5% of the final sale price. varies by state.

 

[jpiniero]

but what is people's feelings towards something like 2-3 year savings bonds so that the money is at least keeping pace with inflation? (my only worry would be any complications that could arise if, say, we found the perfect house but the bonds were still months away from completion)

The one thing I could think of is I-Bonds, which is yielding 1.9% right now. But you are limited to 10k and have to forfeit 3 months if you take the money out before 5 years. Most everything else would yield less, or you would have to take some risk.

there are enough programs for first time home buyers that I probably don't *need* 20% down, but I'd still like to save as much money beforehand as possible (figuring that whatever money isn't put towards a down payment could go for paying for any immediate upgrades/fixes the house needs, especially stuff that would be easier to do before moving like refinishing the floors and painting)

I'd highly recommend it, even if it's just to avoid PMI. It gives you a 'buffer' in case you have to sell for a loss so it doesn't end up as a short sale (realtors actively avoid foreclosures and short sales)