Should I invest or pay for a house? -- cannot put in retirement fund?

Hi, I got a new job which does not offer retirement benefits (e.g., 401k) until I have been employed by them for one year -- so I will not be able to contribute to their retirement funds this year. I do plan to max out my Roth IRA for this year. That should still leave about $6,000 which I would have invested in 401k if I could.

At the same time, my husband and I plan to buy a house this year. We should have enough for 20% down payment.

The question is, should I invest the 6000 as an extra downpayment for the house (or extra mortgage once we buy the house), or should I open a non-retirement (no tax benefit) investment account and put the money there? I would appreciate your input. Thank you!

Yes, after paying down payment for the house, I would stil have enough cash reserve to live for 6 months or if I need to buy a new car, etc.

The question boils down to risk/reward. The safe bet is to put the $6,000 towards the house. It's a guaranteed ~4% return on your money (~6% interest minus the ~2% tax savings you will no longer be getting). It also means you have more equity in your house... this is especially important if house values continue to fall and you need to sell your house for any reason in the next 5 years.

The alternative is to find another investment. In your case I would look at tax avoiding funds like this one:
https://personal.vanguard.com/us/funds/s...
It averages about 11%/year although it does carry alot of market risk as any stock fund does. Another choice is more balanced tax avoiding fund:
https://personal.vanguard.com/us/funds/s...
This one averages around 8%/year but is more reliable. Either of these funds minimizes realized gains so your tax consequences are minimal. With either choice you need to hold the investment 5 years to avoid a 1% withdrawal fee.

One final option I'll throw out there is to put the $6,000 into a money market fund or CD at your bank. Next year put it in your 401K so you can max it out during the year. This is probably the option I would take given your circumstances.

Best of luck in your investing choices!

put it toward the house, less principal that you will have to pay interest on for the next 30yrs

Do you have a liquid emergency fund? You should have something there, right now there are 8 month CDs that are paying almost 5% but it would tie up your money.

There are even some checking and savings that are bearing interest.

Good luck.

This is a complicated subject, and there is no clear-cut right answer. In general you will find that the interest rate on the mortgage is usually higher than interest rate you can invest the money for, so at first glance, it may be best to pay off the mortgage. You can deduct mortgage interest on your taxes, but you have to pay taxes on your investment interest, so the tax aspect is usually a wash.

You can also invest in stocks or stock mutual funds that average 10% a year. This can be risky however, as some years you will lose money instead of making money. I personally would rather pay off the mortgage, but if you are a risk taker you can try stocks.

Read these links for more discussion:

http://www.smartmoney.com/home/living/in...
http://money.cnn.com/galleries/2007/real...
http://money.cnn.com/galleries/2007/real...
http://articles.moneycentral.msn.com/Ban...

Just put the 20% down and finance the different. Make sure you get a conventional fixed rate mortgage with an open end which means you can pay down the mortgage anytime. If you go 30 years, you're paying 70% in interest on the first 15 years. Request an amortization that will give a break down between the interest/principle and just pay extra each month to reduce the years. Put the $6,000 in a saving in case of emergency.