Save money to buy a house down payment This may feel challenging given the current circumstances real estate price. Using the right assets can help improve your balance.
“The biggest driver” is when you really need the money, said Ryan Dennehy, a principal and financial advisor at California Financial Advisors in San Ramon, Calif. Our company Ranked 13th 2024 CNBC FA 100 list.
“Do you need the money in six months or do you need the money in six years?” he said.
The timing is important because financial advisors often recommend Reserve funds for short-term goals Exit the market. Can have more flexibility for mid-term goals Three to five years, but it’s still wise to prioritize protecting your balance. After all, you don’t want a bad day in the market to impact your ability to Make an offer On a home.
But that doesn’t mean your down payment funds also need to go into a basic savings account.
Here’s how to calculate how much money you might need, and some options for safely increasing your balance:
How much down payment do you need
Knowing how much money you may need can help you better gauge your timeline and the assets that are right for you down payment.
As of the second quarter of this year, the median sales price of a U.S. home was $412,300. according to The U.S. Census is conducted through the Federal Reserve. That was down from $426,800 in the first quarter and down from a peak of $442,600 in the fourth quarter of 2022, the Fed reported.
So, for example, if a homebuyer were to put down 20% on a $400,000 home, they would likely need to save about $80,000, says certified financial planner, private wealth advisor and partner at Paragon Capital Management in Denver People Shaun Williams said. Our company Ranked 38th On the FA 100.
Will you need the money in six months, or will you need the money in six years?
Ryan D. Dennehy
Financial Advisors at California Financial Advisors in San Ramon, CA
Sure, a 20% down payment might be traditional, but This is not mandatory. some loans Need to be as low as 5%, 3% or No down payment required at all. Down payment assistance programs are OK cover some tags.
In 2023, the average down payment will be about 15%, first-time home buyers usually pay close to 8%, and repeat buyers will pay about 19%. according to National Association of Realtors.
Note that if your down payment is less than 20%, your lender may require you to purchase private mortgage insurance. PMI costs can range from 0.5% to 1.5% of the loan amount each year, depending on factors such as your credit score and down payment. according to to mortgage reports.
4 Ways to Increase Your Down Payment Savings
Here are some options worth considering, advisers say, depending on when you want to buy a home, how much you’ve saved and how much cash you need:
1.CD
Proof of deposit allows you “Lock-in” a fixed interest rate For a while, Dennehy said. You can purchase CDs through a bank or brokerage account.
The term of a CD can range from a few months to a few years. The annual yield will depend on factors such as prevailing interest rates, time deposit term and deposit size.
If you need to withdraw funds before the CD matures, the bank may charge a penalty, erasing some of the interest earned, Dennehy said. Some banks also offer penalty-free deposit options.
With brokered CDs, there are typically no early withdrawal penalties, but you will be affected by secondary market CD valuations, he said. You may also face sales charges.
As of October 23, the top 1% of annual interest rates on one-year CDs were approximately 5.22%, compared with the national average of 3.81%. Every DepositAccounts.com.
2.Treasury Bills
With the support of the U.S. government, treasury bills is an asset that provides you with a guaranteed return, with terms ranging from 4 to 52 weeks. The asset can less liquiddepending on where you buy.
treasury bills Yields are currently well above 4%.
You can buy short-term or long-term Treasury bonds depending on your target timeline, Dennehy said.
Interest on Treasury bonds is subject to federal taxes, but not state or local income taxes. Jeffrey Hanson, CFP, a partner at Traphagen Financial Group in Oradell, N.J., said Treasury bonds can offer “comparable rates with less tax implications” than CD rates. Our company Ranked 9 On the FA 100.
High-yield savings accounts are great if you plan to buy within the next year.
Sean Williams
Private Wealth Advisor and Partner at Paragon Capital Management in Denver, Colorado
3. High Yield Savings Account
High-yield savings accounts offer higher-than-average interest rates compared to traditional savings accounts, helping your money grow faster.
As of October 23, the average return for the top 1% of high-yield accounts was 4.64%. Every DepositAccounts.com. By comparison, the national average interest rate on savings accounts is 0.50%.
The convenience of HYSA makes it especially suitable when you’re about to start looking for a home.
“High-yield savings accounts are great if you’re looking to buy next year,” Williams said.
4. Money market funds
Money market funds typically have slightly higher yields than HYSA, Dennehy said. As of Oct. 23, some of the highest-yielding retail money market funds had yields approaching 5%. Crane data.
But HYSA is usually insured Money market funds are not FDIC, Dennehy said.
Nonetheless, money market funds after consideration Low risk and no loss of value, according to to the vanguard. They may qualify for $500,000 of coverage under the Securities Investor Protection Corp., or SIPCWhen deposited into a bank account, Vanguard noted.
