Putting money towards Roth or Home downpayment

[jimmyrules712]

Looking for some advice.

I'm 23 currently, I have no debt, EF is where I want it to be for now. I want to be able to make a 20% downpayment on a home by the beginning of 2012 (getting married) and that will cost somewhere between 20k and 30k. I have the capability to save about 30k between now and then if I put all my extra money towards that, but that would mean I cannot fund my Roth IRA for 2011 and 2010 would only be half funded (about 2.5k).

and FYI I also have a 401k where I max out what my employer matches (my contributions plus my employers currently add up to about $8k per year)

So I'm trying to decide if it's worth neglecting my roth IRA for 2 years to have the 20% home downpayment.

Thoughts?

[Hector]

You are doing very good at your age. Congratulations.

Why not save 10k/year instead 15k/years towards down payment? Why are you in such a hurry for taking mortgage?

Did you talk to your fiance about taking mortgage around the time you are getting married?

[jIM_Ohio]

why the time table to move into a house? If you take away the time aspect of the goal, max out the Roth(s) and save what you can for the house. If you wait another 2 years to move, that is not a bad thing.

Getting married is stressful enough, might as well move 2 years after to avoid over stressing yourself.

[MonkeyMama]

At your age - I would skip retirement for the down payment. (Maybe because that is what I did?).

Saving $10k per year instead is just as valid of a plan. (Maybe more well rounded).

I am personally glad we put our *all* into getting into a house (was very expensive - needed to save over $50k just to put 20% down on a condo), but I've never been in a position to save so much to one goal like that, since I Was 23 or 24. After that? Mortgage, retirement, kids, insurance, life... Of course, once we got a home (24?), we shifted the bulk of our savings to retirement, so I certainly don't feel behind.

That said, I had a 401k at my disposal, once we bought our home. Do you have a 401k or anything like that? If you can only put $5k per year into retirement, it may be worth making that a priority (not as much opportunity to make up if you can only do $5k per year). KEep in mind you can fund a ROTH in April of the following year. So, you may be able to fund more of the ROTHs if you wait until the last minute to fund them.

[Scanner]

Put "something" in your Roth.

You won't regret it.

This doesnt' have to be all or nothing or either or.

[jIM_Ohio]

you won't go "wrong" doing only one, only the other, or a little of both.

However one "common" problem seen on these boards is people put an "artificial" constraint on a goal (like a house purchase) before examining the means to do so...

meaning it "appears" (to me anyway), that you came up with the idea to "buy a 200k house in 2012" then figured out "how do I fund the goal".

That logic is OK, but it might lead you down road of making a bad decision simply because you forced the time.

If you reversed the logic... stating "I have 30k over 15 months to fund my goals", then allocated 5k per year to Roth (15k out of pocket) plus 15k to house savings, in about 3 years you would reach goal without "constraining" yourself.

Renting is not a bad thing- just decide if costs going up (when owning) justify waiting or buying sooner. For example if owning a house would not allow you to put money in Roth- WAIT. If you can hit all savings goals and move into house sooner, that is OK.

One more thing, think of all costs of owning a house as sunk costs. A house is NOT an investment. A house is an asset, it will go up in value... but if you look at what you will PAY for a 200k house, it is 200k principal, plus another 187k in interest (30 years) or 85k in interest (15 years), meaning you would have paid 387k or 285k for an asset valued at 200k. You would need anywhere from a 50% to 100% return on the house to recover all your costs. That is a bad investment.

[littleroc02us]

Why not max out your Roth IRA now the 2.5k and then max out next year by setting aside a plan of $416 a month which would max out 2011. Meanwhile it may extend your down payment for a while, but it would be wise IMO. Get married first, rent together for a whiile and then get to know each other before you buy a house.

[jimmyrules712]

I edited my original post with this info but I do also have a 401k where I max out what my employer matches (my contributions plus my employers currently add up to about $8k per year).

Also I very well know the benefits of renting vs buying. I had the money to make a down payment on a home last year and the new home buyer tax credit made it very tempting, but I opted to put that money towards paying off debt instead and have been renting a bedroom from a friend who owns a house for $300 a month. Obviously though I do not want to stay at my friends house after getting married. Buying a house right off the bat would just be nice so we don't have to move multiple times in a couple years.

I suppose for now I'll finish maxing out the Roth this year and next year save my cash and not decide what to do until either I decide to buy a house or April 2012 rolls around and it's my last chance to fund the roth for 2011.

[MonkeyMama]

That changes things a lot. So, you aren't even neglecting retirement - that is a lot to put in at your age. I wouldn't worry about it (but would keep in mind the April 15 deadlines which give you more time to fund prior years).

Not that any expert would recommend it, but we bought a home first so that we didn't have to move and get married at the same time. For the masses, it may be a bad idea. But when you have been with someone a long time, know you are getting married, and know you want to settle in one place, it made the most sense. (& when renting is way more expensive).

As far as renting being preferable, just depends where you live. NOT where I live!

[jIM_Ohio]

what is the cost of renting a 1 BR apartment
what is the cost of a 1500-2000 sq ft house in same area? What is that monthly payment on a 15 year fixed term?

[Slug]

Um, you should max the Roth's. It's a complete no-brainer. You don't own a home. Thus, you will be a first time homebuyer. As a first-time homebuyer you are eligible to withdraw $10k ($20k if married) for a first time home purchase. Although I would encourage you to use money saved outside the Roth to fund your down payment, I can see no reason not to max it out given the window you've suggested.

[parafly]

I would max out the Roth IRA. No need to rush into a buying a home especially while you are so young and newly married.

[MonkeyMama]

Slug is right - I thought it but didn't say it. You could put it in a ROTH (something safe like cash) and pull it out when the time comes. Then, if things change, you haven't lost your chance to contribute for specific years.