How to Save and Invest for a House Down Payment
Rising home prices and stricter borrowing standards have put saving for a down payment back on the agenda for many homebuyers. The days of low or no down payment borrowing are gone, even as mortgage rates have remained low for the time being.
Saving to buy property can be tricky, however. Investors preparing to make a down payment typically face a short time horizon, and possibly a moving target, as real estate prices rise rapidly in many parts of the country.
This makes the traditional advice for short-term goals -- keep your savings liquid and protected -- a test in patience and restraint. It cannot be easy to watch home prices rise steadily each month while you are slowly stashing away funds in an account that earns next to nothing in a low-yield environment.
What should investors do? When it comes to saving for a short-term goal, there is no secret trick. Resist the temptation to seek higher returns, when those higher returns come at the cost of higher risk. "If you need money for the short term, you need to be more conservative," says Bob Stammers, director of investor education at CFA Institute. "You can't take swings in asset prices. You can't have the market take a downturn before you need the money."
