Bought New Build, 8 months until Close

[Connor Ong]

Hey BP, 

I'm out in Chandler, AZ (a city just outside of Phoenix, AZ) and I'm under contract for a new build townhome. I paid my deposit and locked in my price back in February of this year. The estimated completion date is January-February 2022 for my home, which means that my down payment won't be due until around November 2021. And I plan on house hacking once it is completed!

I've got a few questions about what y'all think would be the best ways of investing in the time until my house is completed, and/or what strategies you think I could/should pursue while I'm waiting for my home to be completed. I currently have 5% saved and will be going with a conventional loan for my home. 

1. Save more money for a larger down payment? Realistically, after my normal monthly expenses, I'd have around another $22k saved up by the time my down payment is due. 

2. Pay off student loans? I recently graduated grad school and have a good amount of student loans (~$100k). My monthly payments are only around $450/month, but they're not being collected or earning interest right now because of COVID. I could pay off some of them with the amount saved up from above, which would help my debt/income ratio. 

3. Stocks/other investments/savings? I've thought about putting my extra earnings into a high yield savings account, but the rates are all around 0.5% instead of their normal 1-2% because of COVID. I've also thought about maybe saving the money for another down payment if another deal appears in the time before my down payment is due. 

I know there's not any ONE answer, but any ideas/suggestions/recommendations would be appreciated! Thanks BP! :)

[Matthew Brill]

Congrats @Connor Ong. Love the strategy.

I would put as little money down as possible as long as the income covers the expenses (particularly when you would move out). Lower DP decreases cash flow but increases ROI. Also, equity in a home can be difficult to access. You are better off keeping that capital for reserves and using for next investment/house hack.

Paying your student loans down would not help your DTI. DTI is based off the payment, not the outstanding balance. I have LOTS of students loans as well (double yours) and I refinanced them to a better rate and lower down payment and use the increase in cash flow to arbitrage the interest rate vs a higher investment return. This strategy is different to everyone (I don't have much of an adversity to debt). If you are a good steward of your money (sounds like you are) I wouldn't pay it off and better to invest it. If you do want to pay it off ASAP the best way to do is to save the money in an interest bearing account and they pay it off in lump sum once you can cover it all. This way you have control of the money (as opposed to making extra payments the money is gone, you can't get it back in an emergency, and it doesn't change your payment). You may pay a tiny bit more interest in the end but is worth having the control.

You should think about what your plans are with investing and long term goals. If you work backwards with the end in mind it will be easy to create a plan to meet those goals.