I'm saving for my first home, and need some advice...

[SKKY]

Here's my situation:

I'll retire from the Military in 5 and a half years.

In March of next year, I'll get a nice sized bonus (30K ish).

I currently put 15% of my income into the Governments Thrift Savings Plan.

I could probably afford to put up to 25% of my income into investments.

Shortly after I retire (withing 2-3 months), I'd like to purchase my home.

Any strategies you can recommend would be hugely helpful.

[DrDan]

1. well - first congratulations on upcoming retirement

I spent many years in USAF . . .

So - I would not get in a hurry - buying a home is not easy, particularly your first. It takes a lot of time and research.

Spend a lot of time in the area where you plan on retiring. Get to know the various neighborhoods - and get to know them at all different times of the day. One of our past homes was next to a Middle School - very very quiet neighborhood - except 30 minutes in the am and 30 minutes in the afternoon.

I would suggest putting down as much as possible - going for a short-term mortgage (15 yr) vs a long-term (30 yr), and paying it off as soon as possible. I would also avoid the trendy morgages - like ARMs. People are now losing their homes now because they stretched themselves at the time of purchase, and the economy did not support their decisions a few years later.

We paid off our home 20 years ago, bought a couple since then and avoided mortgages altogether. It makes life very different - not being tied to a mortgage.

[A HERETIC I AM]

2. A couple of things i can suggest.....without breaking any rules!

If your Gov't TSP is this one; http://www.tsp.gov/ it looks as if they are not currently matching any part of your contributions. (see this page; http://www.tsp.gov/uniserv/features/chapter04.html )
"As of the date of this Web edition, matching contributions had not been authorized by any of the uniformed services. Your service will notify you if you are eligible to receive matching contributions." Basically, that sucks cause one advantage to a corporate 401(K) is the employer matching part of your contributions. Essentially free money.

Check and see if they are indeed matching the percentages mentioned. Even if they aren't, one advantage to a plan such as this is that it has a much higher maximum contribution limit than an IRA. Also, look CAREFULLY at the investment choices you have made and seek the advice of a professional to determine whether or not they are appropriate for your situation. If they are matching then great. If not, consider alternatives. Again, professional advice is paramount.

If you can afford to put 25% of your salary away then do it by all means but make sure you are doing it in such a way that as much of it as possible grows tax deferred (An IRA is a perfect example but they have limitations that may not suit you - $4000 annual limit for contributions, for example. A Roth IRA also has a limit of $4000) and that you invest - again - in instruments appropriate for your situation.

Post #1 makes an excellent point. Putting as much as you can toward your down payment and getting the shortest term loan you can afford helps build equity quickly. One of the best ways to build wealth is through home ownership.

[DrDan]

3. one other technique that I forgot in my earlier post

Consider a home equity loan for use in emergencies - vs tying up your own cash. Then use the extra money for a larger down payment.

But - only do this if you have the self-control to not touch that home equity loan UNLESS it really is an emergency. You do not want to use that money for vacations, new cars, etc - at least in my opinion that is the case. Never put your house at risk unless absolutely necessary.

We have done this for the past few homes - and feel comfortable that that emergency cash is available through simply writing a check.

[Sammy Pepys]

4. Thoughts...

1) Figure out where you want to live and how much house you'll be able to afford.

2) Set a savings target of 20% of that figure for a downpayment.

3) Examine your options between 15 and 30 year mortgages. Personally, I'm a bigger fan of 30s because I don't think you should dump all your cash into your home. You'll never be able to get the money you've paid in to your mortageg back if you ever need it...whereas if it's in savings account, money market or even a mutual fund you can get to it if needed.

4) Start putting aside money for an emergency fund with your ballpark mortgage payment figured in, if you don't have it already. 4-6 months of living expenses is usually pretty good.

[DrDan]

5. well - let me challenge #3

We maintain a home equity line-of-credit for the reason you mention. We have not as yet needed to use it, but it is always there just in case. I think these are great substitutes for money-in-the-bank for emergency situations.

[Sammy Pepys]

6. I like "money in the bank" better

HELOC essentially turns your equity into a complex credit card, with your home as collateral.

And a HELOC is not always there...you may have to borrow within certain periods, and may have to draw money on it just to keep it active. If your borrowing period runs out, you have to re-up. Getting the line in the first place usually costs money.

HELOCs are cool for other stuff like home improvements, but I don't think there's any substitute for cash when it comes to emergency reserves.

[BOSSHOG]

7. Congratulations Shipmate

I retired from the Canoe Club 4 years ago and I truly love the first and of the month and those COLA raises at the first of the year are very nice as well.

I'll leave the savings and advice to others but put all your goals in writing with realistc attainable dates. Structure your list to your five year window. At the top of the list:

- WIPE OUT ANY DEBT YOU MAY HAVE, MARK IT ON THE CALENDAR. SIX MONTHS BEFORE YOU RETIRE PLAN ON HAVING ZERO CREDIT CARD DEBTS AND ANY LOANS PAID OFF AS MUCH AS POSSIBLE
- IF YOU HAVEN'T JOINED YET, JOIN NFCU AND REMAIN A MEMBER FOR LIFE
- OKAY I SAID I WOULDN'T ADVISE THIS WAY, BUT WHAT THE FUCK, I'M A CHIEF AND ANY GOOD SAILOR KNOWS ITS BEST TO LISTEN TO A CHIEF. AVOID, AVOID, AVOID A HOME EQUITY LOAN AT ALL COSTS. PUT YOURSELF IN A POSITION WHERE YOU WILL NOT NEED ONE.

Now go kick ass shipmate, make those goals and objectives and stick to em. Did I mention the number one goal would be to WIPE OUT DEBT?