Where To Stash Your Down Payment: With property prices reaching all-time highs, this year’s housing boom has left some hopeful purchasers dissatisfied, discouraged, and with a large lump sum of cash in their bank accounts.
Homebuyers often set aside between 5 percent and 20 percent of their income for a down payment, with additional funds set aside for closing costs. A number of would-be purchasers were greeted with bidding wars this year, were stymied by record low availability or were priced out of popular market locales.
They now find themselves with thousands of dollars in cash that they had intended to spend for a down payment on a house, and they are unsure of where to put it until the market cools down or their dream home becomes available.
This is a particularly difficult topic to answer because of the low-interest rates on savings accounts, which are combined with inflationary pressures. Many people, however, are wary of putting their hard-earned down payment into the stock market, especially in light of the current high stock market valuation and the ongoing epidemic. It is possible that taking money out of an investment will have tax ramifications.
Here are some things to think about while making a down payment for the season. To assist lower the risk associated with financing the remaining cost of the home, banks and other lenders typically request a down payment when obtaining a mortgage. Banks prefer borrowers who are able to contribute at least a fifth of the total buying price of a home. They will normally not lend you more than 80 percent of the appraised value of a home, according to the FHA.
If you have excellent credit or qualify for certain lending programs, you may be able to acquire a loan with a down payment of less than 20 percent, or possibly with no down payment at all, depending on your situation.
Please keep in mind, however, that the schemes that offer such advantageous terms almost often require the borrower to pay private mortgage insurance (PMI), which adds to the monthly payment amount.
As an alternative, if the bank determines that you are a high-risk borrower as a result of your credit history or other reasons, the bank may need a larger proportion of the home’s worth as a down payment before granting the mortgage.
In the process of purchasing a home, there are numerous factors to consider, but one that you might neglect is the type of account into which you should deposit your down payment savings.
Choosing an account is a reasonably straightforward option that is influenced by your time frame for purchasing and your risk tolerance. The channel director of corporate home loans at JPMorgan Chase, Shelby McDaniels, spoke with CNBC Make It about her experience.
If you’re planning to purchase a home soon and want a safe haven, you’ll choose a more conservative account, such as a checking or high-yield savings account, to keep your money in. If you intend to purchase a home within a few years, a brokerage account may be beneficial.
Here’s a closer look at the various sorts of savings accounts available to different types of savers.