Down Payment or Diamond?

Getting married and buying a home are major milestones in anyone's lifetime. But should you spend big for a diamond ring, wedding and honeymoon? Or should you put your cash toward a down payment to buy a house?

The answer depends on your means, lifestyle and personal goals. But there's no question that a house is more likely to be a better investment than a diamond ring, wedding or honeymoon.

Down Payment

Many people believe—wrongly—that buying a home requires a substantial amount of money. In fact, it's easy to buy a home without a lot of cash.

One common misconception is that buying requires a 20 percent down payment. In fact, it's possible to buy with three percent (Home Possible or MyCommunityMortgage programs), 3.5 percent (FHA) or five percent (conventional home loan) down payments. Most U.S. military personnel or veterans can purchase a home with no down payment at all. Homes outside major metros may qualify for zero-down USDA Rural Housing loans.

Another misconception is that closing costs must be paid in cash. In fact, closing costs can be financed as part of the purchase loan, or paid by the seller, a charitable organization or a family member. Buyers who select newly-built homes may have their closing costs paid by the builder.

Some home buyers can also tap government assistance programs for help with their down payment and closing costs.

Moreover, a down payment to buy a home isn't an expense, but an investment. That's because the money isn't consumed, but instead builds home equity, which can grow over time. Homes aren't guaranteed to appreciate in value, but over the long term, most are sound investments and a good way to build wealth. A home with a paid-off mortgage is a place to live for life. And a home, whether mortgaged or not, can be inherited by the next generation.

Engagement Ring

Diamonds, on the other hand, are indeed pretty as they sparkle on a ring finger and signify a promise to be married.

But diamonds aren't necessarily a good investment for most people.

Professional big-time gemstone investors can make money buying and selling diamonds. But experts warn that the diamond market is risky and volatile, and that those without market knowledge and special expertise in color, clarity, cut and carets can easily lose money.

Moreover, most engagement rings bought in retail stores or online aren't even investment-quality diamonds. These stones can be difficult to resell at the break-even point, never mind a profit.

Buying one diamond ring isn't likely to pay off, and if the marriage lasts, the stone might never be sold. Instead, it's just a pricey bit of bling.

Wedding

A big traditional wedding offers a lot to love: beautiful gowns, snazzy tuxedos, sweet-smelling flowers, a multi-tiered cake and hundreds of friends and family members gathered around the happy committed couple.

But, oh my, the cost. While some couples manage to tie the knot for less than $10,000 or even just $1,000, the average wedding tops out at more than $25,000. That's enough for a ten percent down payment to buy a $250,000 house.

As an investment, weddings are even more of an extravagance with even less chance of a financial return than diamond rings. Once everything for the wedding has been bought, and the venue, caterer, florist, musicians and limo driver have been paid, the day is over. What's left is only memories, photographs and gifts—some wanted, others not so much.

But for people who have been dreaming of their big day, wedding loans using personal loans or personal lines of credit are a financing option to help them have their perfect wedding day.

Honeymoon

Romantic newlyweds naturally cherish the traditional honeymoon as a special way to start their married life together. That might be especially true for those who plan to start a family soon, which will surely diminish their opportunities to travel as a couple unencumbered with children.

Honeymoons can be had on a budget small enough for, say, a weekend getaway. Some people opt for a more extravagant honeymoon and may choose to get a travel loan (sometimes called a personal loan) to help them fund their dream vacation. But a weeklong trip to a prime destination can cost $5,000 or more. That's enough for a 3.5 percent down payment to buy a $143,000 home.

The bottom line is that diamonds, weddings and honeymoons are nice to have. But wouldn't a down payment for a homec of your own be even better?

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