Hypothetically, of course. Looking for input on home down payment amount. I own other real estate, so don't want all of my spare cash going towards more real estate. Have a few years of expense in VTSAX as well. Looking at Vanguard Bonds to hedge against the home value and have some liquidity for emergency.

Looking at a $600K home. Have about $360K in Vangaurd Cash Plus currently at 3.65%. Treasury 10 year about 4.9% and 30 year mortgage about 6.5%.

Any thoughts on how much to put down?

Thanks. Throwing it all at the mortgage checks out by the numbers.

I'm considering $200K down and sporadically paying more towards the premium on a quarterly basis. Sort of like dollar cost averaging.

jja79 said:

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I've been retired for 6 months so don't pay attention to this. In several decades of mortgage I was typically asked by legitimately rich people 2 questions.

1. What's the lowest down payment?
2. What's the longest term available?

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as someone whose 1st mortgage was a 15 year note...and paid cash for my pool many moons ago...I 2nd your insinuation...over time, it's far more advantageous to lengthen the financing of your home...provided you are not sticking the additional funds in money markets...the S&P and the investments the "legitimately rich" as you say, far outpace mortgage rates...even currently...but that advice is not for everyone...

That's why I said legitimately rich. I'm talking about people that could write a check for a 7 figure house and not miss the money. Save for one they were all about other people's money.

I appreciate the anecdotal input. I like the idea of putting the extra cash in the S&P (VTSAX) because of the liquidity.

All I have to do it match or beat the mortgage rate.

My real question would be why do you have $360k making 60 bps less than a money market fund? Or making less than a muni fund if in higher than 24% tax bracket?

I'm not totally sure I understand your question, but I don't think what you're suggesting aligns with my strategy. Maybe you can elaborate/clarify.

As mentioned, the cash is making 3.65%. I've been DCA into VTSAX. Even if I dumped it all into a mutual fund, I assume there would be tax implications I don't want to involve when I sell for the house down payment.

I believe mosdefn is just saying that most money market accounts are above 4%, so your cash at 3.65% is not at its full potential. SPAXX for example, 7 day yield of 4.11% currently.

Ah gotcha. I think this is purely out of laziness or simplicity. I sweep everything from my personal banking into my brokerage bank. I do have plans for that cash so wasn't trying to over think it.

Like I said, I've been DCA into VTSAX.

Thanks Steve. Appreciate the input. I believe the 6.5% was buying points. I like the idea of 20% down.

Always been a fan of either paying cash or financing as much as possible. Nothing in between. You have a few years expenses on top of the $360k? If so, can you pay cash, and then start putting back into savings?

Yes and yes. But I'd feel VERY naked/exposed without any emergency or cash to invest in something private that comes along.

Side-pocket16 said:

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I believe mosdefn is just saying that most money market accounts are above 4%, so your cash at 3.65% is not at its full potential. SPAXX for example, 7 day yield of 4.11% currently.

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Yes, or tfdxx 4.25%. Giving up 60bps free money on 360k is real bucks. If we're not worried enough to do that first, not sure the bigger question which involves risk is worth giving brainpower to.
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OP - Income on cash is taxed the same as ST cap gains…so your comment on tax implications is moot.

I just think you're asking the wrong question without a full menu of options.

No consideration of pledging assets in lieu of down payment? Or a line of credit against the market based assets for your "what if" liquidity concern?

Appreciate the input. I wasn't aware the cash income was taxed the same. To be fair, the cash balance has only been at $360k for less than a week. I'm going to move some into VMFXX for the short term.

Can you elaborate on the menu options of pledging assets instead of down payment and line of credit portion?

generic philosophical question:

invest $300K in equity markets or $300K in purchasing a home?

one of my best friends who made his fortune in real estate development says to RENT and invest the money in the stock market.

another one of my best friends says buy something now.

Ah yes, the age old question.

The answer is...it depends on your personal needs and situation.

That said, if you rent below your means in a market where it is cheaper to rent than own (like Houston right....maintenance, tax, insurance, and interest payments on a new loan outweigh the equity you put in, plus the average you get in the market), you can absolutely make some great returns, on a very liquid investment...without the emotional part of owning a home.

SteveBott said:

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The emotional part of owning a home is a benefit to most. It's not quantifiable but lots of reasons to own or live in a certain home is such. What's the value of place? Of the commute? The schools? The ability to let your kids play on the yard?

Each of assign our own cost/benefit.

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Great points.

for me no kids, divorced many years ago, looking at central Florida coast near Ormond Beach/Melbourne.

so to have to pay hurricane insurance, HVAC, replace parts due to summer humidity sounds like it's a better financial decision to just invest in the stock market and rent.

LMCane said:

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generic philosophical question:

invest $300K in equity markets or $300K in purchasing a home?

one of my best friends who made his fortune in real estate development says to RENT and invest the money in the stock market.

another one of my best friends says buy something now.

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If we are going by whats purely the better financial investment, then the stock market wins hands down. The S&P 500 has averaged 10% returns for the past 30 years, the Nasdaq 100 has averaged 14% returns. The average home appreciation per year is between 3-5%. That $300k in the stock market is likely doubling every 7 years, and chances are your home value is probably not going to double in 7 years. Of course, your mileage may vary.

Now if we are talking about whats a better lifestyle decision or whats better for you and your family, then owning a home is probably the better choice. But if you are young and single with no kids, then renting and stashing as much as you can in the stock market every month is probably (not always) a better financial investment than buying a home.

All my kids rent does that count?

I consider home ownership as kitchen money, a must before anything else. The feeling of security, like have that home cash hidden in the pantry.

What the home is worth on the market is irrelevant as it is an asset that is never for sale even when you change the address. It is a refuge, a place to calm the spirit, it is home and it is yours.

It is A piece of ground worth dying for.

Home ownership is the American dream.

SteveBott said:

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The emotional part of owning a home is a benefit to most. It's not quantifiable but lots of reasons to own or live in a certain home is such. What's the value of place? Of the commute? The schools? The ability to let your kids play on the yard?

Each of assign our own cost/benefit.

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Yup.

As demonstrated by the below.

Quote:

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I consider home ownership as kitchen money, a must before anything else. The feeling of security, like have that home cash hidden in the pantry.

What the home is worth on the market is irrelevant as it is an asset that is never for sale even when you change the address. It is a refuge, a place to calm the spirit, it is home and it is yours.

It is A piece of ground worth dying for.

Home ownership is the American dream.

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There are lots of great reasons to own a home in certain circumstances. There are lots of great reasons not to.

Neither is "the right way" when trying to build wealth as both can do so.

It just all depends.