question about investing IRA or saving towards Downpayment for house

[Fast Food Knight]

Currently 22 and am looking to buy a house. Is it better to go ahead and take 4k out of my savings and invest this year in an IRA or keep that 4k in the "downpayment for house" fund and invest in the IRA next year? Assuming i would be paying about 10k in rent for the yr if I opt to invest in an IRA instead of putting towards a house.

thoughts or other options?

EDIT: Forgot to add that I definitely want to put 10% down on the home.

[maxtower]

It is possible to get nearly 100% financing for a first time home purchase if your credit is good. If the housing market in your area favors owning over renting right now, then I would recommend making a home purchase and putting the 4k into an IRA. Talk to a mortgage broker and find out the minimum amount of cash on hand you will need to purchase a house. You also have until April 15th, 2007 to contribute to an IRA for 2006.
Make sure you get a 30 year fixed mortgage since the spread isn't great enough to warrant getting an ARM.
Don't buy if renting in your current market is cheaper.

Max

[TheAntiPuritan]

ok clarification...

say we need $25k to make the downpayment in Jan-2007. Would it be better to take $8k (4 each) and put it into our respective RothIRAs before April-2007 (meeting the deadline for the 2006 year) leaving us with $17k. However, we would then need to get a short-term lease for the 6 months it would take us to save back up for the $25k downpayment?

OR

would it be better to go ahead and buy the house now and miss the chance for our 2006 RothIRA contribution but just start contributing in 2007?


my thinking is that it would be better to make the contribution to the RothIRA for 2006 and the go for the house a couple of months later and my reasoning is that the future value of that $4k ($8k really) will be worth way more than the money we throw away on renting for the 6month extension.

[hedgeyerbets]

you can use 10k of IRA monies toward a down payment on a first home.

[SossMan]

[ QUOTE ]
you can use 10k of IRA monies toward a down payment on a first home.

[/ QUOTE ]

qft

[SlowHabit]

ROTH = 100%+++ rakeback.

[Big TR]

Funding the Roth would probably be the way to go if you can get a short term lease. Tax-free compounding for decades is typically the answer when faced with this decision.

What makes this even more weighted toward contributing to the ROTH is the fact that you are willing to find a short term lease to wait and save up to get back to your desired downpayment.

Most believe that the housing market will stagnate through the next 9 months. If you wait, you can probably get a much better deal on a home when the market is flooded in the late spring selling season.

As for the posters saying you can take money out of your ROTH, this is true. Buy I'm not sure why you would want to do this when you have the means to save up for a downpayment.

[hedgeyerbets]

the title of hte post is "Re: question about investing IRA or saving towards Downpayment for house" which rather clearly implies that it is an either or situation. The point is that he can kill both birds with one stone, as opposed to having to choose.

[Big TR]

If you read his second post, he states that delaying the purchase by getting a short-term lease is a viable option.

Putting money into a ROTH IRA only to immediately take it out is a non-sensical proposition. This does not help him make a decision.

My advice to fund the Roth and delay the home purchase stands.

[maxtower]

Or you could buy the house in Jan. Then take out a HELOC for $8000, and pay that off while you live in the house if you are worried about missing the '06 contribution.
The interest paid on the HELOC is tax deductible, so instead of 9%, its going to feel like 6% after the deduction.

Max