Par t I: Home Economics in .NET

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As with all informed investing decisions, which investment(s) you consider for money earmarked for your down payment should be determined by how soon you need the money back The longer the time frame during which you can invest, the more growth-oriented and riskier (that is, more volatile) an investment you may consider Conversely, when you have a short time frame five years or less during which you can invest, choosing volatile investments is dangerous When the stock market is rising, as it did so often in the 1990s, some folks are tempted to keep down payment money in stocks After all, when you re getting returns of 20 percent or more annually, you ll reach your down payment savings goal far more quickly Greedier investors lusting after high-flying technology and Internet stocks that seem to double in value every 90 days hope to quickly parlay their small savings for a shack into a money mountain for a mansion Investing down payment money in stocks is a dangerous strategy Your expected home purchase may be delayed for years due to a sinking investment portfolio Stocks are a generally inappropriate investment for down payment money you expect to tap within the next five years More aggressive individual stocks should have an even longer time horizon ideally, seven to ten or more years Consider what happened to the home buying dreams of folks who foolishly parked their home-down-payment money in the stock market before and during the severe stock market decline of the early 2000s and the steep decline of 2007 08

Most prospective home buyers aren t in a position to take many risks with their down payment money The sooner you expect to buy, the less risk you should take Unless you don t expect to buy for at least five years, you shouldn t even consider investing in more growth-oriented investments, such as stocks Although it may appear boring, the first (and likely best) place for accumulating your down payment money is in a money market mutual fund As with bank savings accounts, money market mutual funds don t put your principal at risk the value of your original investment (principal) doesn t fluctuate Rather, you simply earn interest on the money that you ve invested Money market funds invest in supersafe investments, such as Treasury bills, bank certificates of deposit, and commercial paper (short-term IOUs issued by the most creditworthy corporations)

More than a few books written by (and highpriced seminars led by) real estate gurus claim that not only can you buy property with no money down but also that you can make piles of money doing so A generation ago, this way of thinking was popularized by Robert Allen in his book Nothing Down Allen says that the key to buying property with no money down is to find a seller who s a don twanter that is, someone who will do anything to get rid of his property Why would someone be that desperate Well, perhaps the person is in financial trouble because of a job loss, an overextension of credit, or a major illness Perhaps when more people used to live in smaller, tight-knit communities where everyone supported one another, this type of vulture capitalism may not have flourished But in these times, Allen says, a don t-wanter can offer you the most favorable mortgage terms, such as a low down payment and interest rate How do you find such downtrodden souls who are just waiting for you to take advantage of them According to Allen s estimates, 10 percent of the sellers in the real estate market are don twanters Simply call people who have property listed for sale in the newspaper, or place ads yourself saying that you ll buy in a hurry In our experience, finding homes that can be bought with no money down isn t easy to do If you can find such a desperate seller, be aware that the property may have major flaws If the property were a good one, logic dictates that the seller wouldn t have to sell under such lousy terms Should you have the patience to hunt around and sift through perhaps hundreds of properties to find a good one available with seller financing at no money down, be our guest Just don t expect the task to be easy or all that lucrative Better to look for good properties and low-down-payment lender financing and to start saving a healthy down payment so that you can qualify for a better loan

Money market funds are one of the three major types of mutual funds the other two being those that focus on bonds (bond funds) and those that focus on stocks (stock or equity funds) Many people think of mutual funds as being risky investments, partly because they equate funds with stock market investing However, the reality is that under Securities and Exchange Commission regulations, money market funds can invest only in safe securities, and money funds investments must have an average maturity of less than 90 days The short-term nature of these funds eliminates the risk of money market funds being sensitive to changes in interest rates in the way that bonds and bond funds are Although some bank savings accounts pay reasonable interest rates, nearly all pay less in interest than the best money market funds Why Because banks aren t as efficient and low-cost as money markets Who do you think is paying for the rent in all those bank branches, anyway