This Is Where a Finance Pro Says to Stash Your Down Payment Savings

published Jan 10, 2022
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It doesn’t matter if you just started squirreling money away for your dream home or if you’ve built up a sizable savings — Steve Sexton, CEO of Sexton Advisory Group, says that there are options that rise above all the rest when it comes to getting the most out of your funds. Here’s where to keep your down payment savings while you wait to sign on the dotted line. 

Accessibility and safety are key.

If you’re planning to purchase a home within the next few months to a year, Sexton says you’ll want to opt for a savings account that is safe, provides a reasonable rate of return, and is readily accessible when you need it. “I would rule out options like certificates of deposits and the stock market,” he says. “The best options available for these types of scenarios are savings accounts and high yield saving accounts.”

If you have more time, you have more options.

For those hopeful homebuyers who aren’t quite ready to buy yet, or want to build up a more robust savings, Sexton says you might benefit from accounts that provide an even higher rate of return while still allowing you a safe vehicle for saving. A “liquid or flexible certificate of deposit could help you obtain a higher rate of return than a savings or high yield savings account,” he says. “A liquid certificate of deposit enables four deposits per month or quarter; these accounts would provide a higher savings rate and the flexibility needed to access the money to purchase a home.”

Some options are riskier than others.

If your timeline to find a home is within the next five years or more, Sexton says you have a few more options beyond saving accounts, high yield savings accounts, and liquid or flexible payment certificates of deposits. “For those that are comfortable with more risk, consider utilizing a brokerage account and invest in stocks, bonds, and mutual funds,” he says. 

“These accounts will allow you to invest the money in stocks and mutual funds, potentially earning far higher returns than a high-yield savings account.” That being said, Sexton says you need to remember that unlike with the safety of high yield savings accounts, your money is at the mercy of the stock market, and you may find yourself having to wait to recoup losses before you can move forward on your dream home.               

Every situation is different.

Finding out which savings option is right for you may involve doing some math. “I encourage all my clients that are looking to purchase their first home or their next home [to] find out what they will have to set aside for a down payment, and how much would be needed in savings for the lending institution to approve the loan,” Sexton says. “Figure out how much needs to [be] saved monthly, at what rate of return, and which saving accounts to utilize in order to reach your home savings goal.” 

Once you have those numbers, he says you can really start saving. And if you want to save like a pro, Sexton says you should have your monthly deposit automatically transferred from your paycheck or checking account and frequently review your accounts and rates of return.