401K or put toward a downpayment for a house?

Question

I live in San Diego and I'm reading that the price of housing here will be at it's lowest in the summer of 2009. I'm currently contributing $250 a month to my 401K. The county has a first time home owner program that requires you have 3% of the purchase price saved up.

I was thinking I could lessen my 401K contributions for 1 or 2 quarters to save up faster and then return to my regular contribution amount.

Would this be a good idea or should I keep contributing the $250 and take more time to save for a home?

Answer 1

Here are some factors I would consider in making a decision:

One; Does your company match your 401K contribution?  If so you would be giving away money to save for a down payment, consider how a home fits along with your other investments.  

Two; Do you plan on living in the San Diego area for the forseable future?  Usually you want to stay in a home a minimum of 3 - 5 years to allow the value of your home to increase enough to recoup closing costs.

Three; Noone knows for sure when housing prices will reach their lowest point and while the purchase price may be lower what will mortgage interest rates be?  The best time for you to buy will be when you have an adequate down payment and adequate income to pay for and maintain your home.

Four;  If you aren't on a budget get on one.  Find out what you are spending your income on.  You may discover ways to cut back spending in some areas to increase saving for a down payment without reducing you 401K contribution.

Good luck and God bless!

Answer 2

sure you can stop for  a while and start back up

Answer 3

It really depends on when you plan to purchase a home.  I'm assuming from what your wrote, you will be looking to buy in the summer of 2009, about a year from now.  If you can keep putting $250 in your 401K and still save up enough to put the 3% down, I wouldn't change my pattern.  However, if you cannot save up the 3% by the time you plan to purchase, then changing your contribution for a short time would be a good idea.  

There are many first time home owner programs available that require no down payment.  I'm not sure if that interests you, but I would check with different lenders to see what it out there.  Some are government loans (FHA, VHDA, etc.) some are with non-government lenders.  Can't hurt to look.