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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Tuesday, May 02, 2006

Saving Money to Buy a Home

If you are considering buying a home or you are currently in the market for one it is important to have money to put down as a down payment. While the fad today is to not put down 20% as a down payment for a home, this is not recommended (we will explore this topic in a future post).

Whatever amount you have saved up to put as a down payment you NEED to protect.
  • Do not invest money for a home in the stock market
  • Only keep your money in a safe account with guaranteed interest
    • Ingdirect.com is one example of an account that brings in 4% interest
You plan on purchasing a home with your $25,000 in savings as a down payment. Your $25,000 is in stocks, mutual funds, options or whatever investment that contains risk there is a large probability that these investments could decrease. Look at 9/11, the market downturn in March of 2000, and several other examples. Your $25,000 could become $15,000 very quickly.

Rule of thumb: If you plan to buy a home within 5 years do not invest that money in investments that contain risk.

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