Ask Terry Questions Use the money for a down payment?

Use the money for a down payment?

By Terry Savage on August 15, 2015 | Housing / Real Estate

I had a little over four thousand sitting Charles Schwab account earning 00.1percent so I decided to take those funds out and put them in a money market account earning one percent until I can decide where I should invest or I am trying to buy a house ….should I use these fund as part of my down payment I don’t want yo pay PMI Is this a wise choice. I also have a 401k thru work so those funds are not all I have for retirement. I am 52 years old . Thank you

Terry Says:  Well, you have a better idea of your total finances — and the cash you’ll need once you buy the house to buy furniture, save for emergencies, etc — but based on the math it would be better to have a larger down payment so you can avoid paying PMI (private mortgage insurance, which is designed to protect the lender in case you default).  Just think carefully about the cash you will need once you are a homeowner — and don’t forget to figure in property taxes (and potential increases) along with insurance.

That advice would be slightly different if the money is in an IRA and you had to pay a penalty and taxes to take the money out.  Then the math doesn’t work so well — because you forego the tax-deferred growth of the money as well as paying so much to the government.



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