I was recently emailed by a longtime reader that was looking for advice. Unfortunately, I didn’t have any particularly good answers….BUT, fortunately I know I have some very informed and intelligent readers. So I will leave you with her question, and I hope you have some good advice for her….because as you will see, I’m in a very similar situation to hers!

(Emphasis added by me)

I am saving for a home, but like QL girl, am not ready to purchase this year. (Currently housing accounts for only 9.5% of my gross take home—a mortgage would be triple that and I’d be living paycheck-to-paycheck. Plus, I’d like the flexibility to pursue opportunities in other cities, should my current job be affected by the economy). I have calculated the difference between my current rent and estimated mortgage to be $900 and have diligently put that amount into an ING savings account every month. Current interest yield on the ING account is 1.5%

Financially I’m in good shape. I have a 401K with 6% matching and a ROTH IRA I routinely contribute to. Car is paid off, and my only outstanding debt is 40K in consolidated school loans with an interest rate of 2.25%. I am paying the minimum on the loans.

My question for QL readers is—considering I will likely purchase a home within the next five years (and do not currently have enough for a 20% down payment saved)—should I continue my current course of savings, or should I consider some sort of investment that will allow me access to my cash when I need it? And what about those school loans? Since my ING account is accruing less interest than my loans, should I be putting a good chunk of money towards paying those down?


First of all, I think she’s done an awesome job with keeping her finances straight!!

Secondly, my advice would be to continue savings until she reaches that 20% downpayment in savings, but even then, where should she keep the money? ING seems a bit paltry at 1.5%, but its safe, and sometimes that is worth more. Are there any types of investments you’d recommend in a case like this? (Low risk, obviously)

I wouldn’t pay down the student loans, simply because if you KNOW you will have a mortgage payment down the road, you are better off having that money on hand to pay off the mortgage as a downpayment than paying off a 2.25% loan. You won’t get any money that cheap very easily!

So there you have it. What advice do you have to offer?