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It’s important to keep your down payment funds someplace safe.
Key points
- A recent survey reveals nearly a quarter of Americans are saving to buy a home this year.
- It’s important to keep your down payment in a secure account where your principal is protected.
Buying a home is no easy feat these days. With residential real estate prices up across the board, buying a home in today’s market could easily mean having to take out a larger mortgage and bring a more substantial down payment to the table.
But still, many Americans are set on buying. In a recent CIT Bank survey, 23% said they’re expressly saving for a home this year.
If you’re on a similar path, you may be wondering where to keep the funds you’ve amassed for your down payment. Here are some options to look at — and one option you’ll want to avoid.
The best place for your down payment
The money you’re saving to buy a home is money you’ll need fairly soon. Granted, you may not be ready to buy this year, but you may be ready next year, or the year after that. It’s for this reason you shouldn’t put your down payment into a brokerage account and invest it in the hopes of growing it into a larger sum.
Investing always carries the risk of losing money. Now, if you’re buying stocks in the hopes of holding them for years and accumulating a lot of wealth for retirement, that’s a perfectly reasonable thing to do. Even if the stock market tanks, you’ll have plenty of time to ride out market downturns and come out ahead (assuming, of course, retirement is many years away).
But when it comes to money you think you’ll need within a year or so, investing is a risky prospect, and one you should avoid. If you have $40,000 on hand for a down payment and you want to buy a home at the end of the year, putting that money into stocks now could mean seeing your balance shrink to $35,000 over the next 11 months or so. That’s not what you want.
The best place for your home down payment is really a savings account or a short-term CD. Though you won’t earn a lot of interest on your money, you also won’t risk losing any principal.
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