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Options trading 4 ways to use your stimulus check if you want to buy a house this year


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Options trading 4 ways to use your stimulus check if you want to buy a house this year

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.Being stuck in a small Brooklyn apartment for the past two months has me thinking more…

Options trading 4 ways to use your stimulus check if you want to buy a house this year

Options trading

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.

  • Being stuck in a small Brooklyn apartment for the past two months has me thinking more and more about buying a house in another city.
  • When I got my stimulus check, I wasn’t sure how to use it, but I thought it might be a good idea to optimize it to help fund the purchase of a home.
  • I asked experts, and they recommended putting the money in a high-yield savings account, using it to pay down debt or boost your credit score, and adding it to a home savings account for future house expenses.
  • See Business Insider’s picks for the best high-yield savings accounts »

Spending over two months sheltering in place in a tiny apartment in Brooklyn has given me plenty of time to question everything about my career, living situation, hobbies, and my overall approach to how I’m spending my money. 

Which is why I’ve started to be more open about ditching my high New York City rent in search of a house I can buy, with a mortgage that’s far less than my monthly rent check to my landlord. 

It would be nice to have more space. I pay over $2,500 to live in a one-bedroom apartment that’s less than 500 square feet and is home to myself, my fiancé, and our dog. For that amount, we could move to another city, put a down payment on a more spacious house, and pay a lower monthly mortgage

While I’ve spent years fixing my finances, increasing my savings, putting money into both a retirement account and an emergency fund, I’ve spent a lot of time during quarantine moving dollars around and calculating how much I’d be able to put down for a house. I even started to wonder if I should take my stimulus check and optimize it so that I could use that cash to buy a house this year.

If you’re starting to feel like paying rent is a waste of money, here are four tips for how you can take your stimulus check and get the most out of it to buy a house in 2020.

Options trading Put the money in a high-yield savings account

When I first got my stimulus check, I was so happy to see the money hit my account. But I didn’t know what to do with it. I thought back to all the expert advice I’ve heard over the years, though, and realized I should immediately put it in a high-yield savings account.

Nilay Gandhi, Certified Financial Planner, is a senior financial adviser with Vanguard Personal Advisor Services. He says that for a near-term expenditure, such as a down payment on a house this year, placing the money in a high-yield savings account is a wise move, since your money will earn more there than in a standard checking account while remaining safe and accessible.

While there’s a lot of talk about putting that cash in the market, Gandhi says steer clear of doing that if you want to buy a house this year. 

“It’s always important to consider your time horizon — exposure to stock markets is generally not advisable if you are planning to use the money within a few months or even a couple of years,” Gandhi says.

Options trading Use the money to pay down debt

Another way to use your stimulus check so you’ll be financially ready to buy a house this year is paying off any existing debt.

Willie Mandrell, founder of The Mandrell Company, a real estate investment company, recommends using the check to pay off small debts that report to the credit bureaus. 

“Reducing your debt-to-income ratio will have a larger impact on your ability to buy a home than simply adding the same amount of cash to your down payment savings,” says Mandrell. “This could potentially bump up your pre-approval spending limit by $20,000 or more on a 30-year mortgage. This strategy will allow you more options when you go out home shopping.”

Options trading Boost your credit score

One of the things I learned when researching what I’d need to do to get a mortgage and buy a house was how much your credit score matters. A higher credit score will get you a lower interest rate, which can make a big difference when borrowing money.

Andrea Woroch, a family finance expert, says it’s important to remember that your credit score is everything when you are buying a home, which is why she recommends using a small portion of your stimulus check on a credit-building loan.

“For instance, apps like Self allow you to make small monthly payments to yourself over the course of one to two years while they report the payments and balance to all three credit bureaus,” says Woroch. “At the end of the term, the money you’ve paid every month unlocks in the form of savings less any fees while boosting your credit score while you’re making those small credit-building loan payments.”

Options trading Add it to a home savings account

While the amount you get for your stimulus check won’t be enough to cover a down payment, it can be put directly into your home savings account for a long list of homeowner expenses. 

Scott Trench, the CEO of Biggerpockets.com, a real-estate investing educational platform, recommends that future homeowners begin budgeting to put away an extra $10,000 to $15,000, which could include your stimulus check.

“I like that number because for most homeowners, that will cover at least six months of mortgage payments, including principal, interest, taxes, and insurance. It will also go a long way towards covering large, unexpected repairs, like a roof replacement, HVAC problem, etc.,” says Trench. “The stimulus check is $1,200. It’s not enough to cover the down payment, or really make up a meaningful percentage of the costs associated with most home purchases. But every little bit helps, and it can be a nice little boost if you are otherwise in good shape and looking to steadily move towards your next home purchase.”

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