In the short and medium run, it’s much safer to invest in FDIC-insured instruments such as traditional savings accounts, certificates of deposits (CDs), and money market accounts. Though these instruments have relatively low yields – currently below 2% APY in most cases (UFB Direct is currently at 2.45%) – the risk of principal loss is extremely low. If you want your down payment to actually be there, in full, when you need it, save investments in FDIC-insured accounts are your ticket.


The steps to buying a house might seem complicated at first—particularly if you're a home buyer dipping a toe into real estate for the very first time. Between down payments, credit scores, mortgage rates (both fixed-rate and adjustable-rate), property taxes, interest rates, and closing the deal, it's easy to feel overwhelmed. There's so much at stake with a first home!
Why? Because, over shorter timeframes, market downturns can devastate savings goals. Imagine that you put $20,000 in the market between 2005 and 2007, on your way to an expected $40,000 down payment by 2009. Between mid-2007 and early 2009, U.S. markets lost roughly half their value. In other words, that $20,000 sum would have shrunk to just $10,000, assuming you added no new funds – no doubt crushing your dream of buying a home in 2009.

You won't have to pay PMI: By making a larger down payment, you can also avoid paying private mortgage insurance (PMI). With a smaller down payment -- say 3.5% -- your mortgage lender will want some financial insurance that you'll pay the larger loan off on time, and in full. That increases the monthly mortgage payments you'll make if you make a smaller down payment - and that's a problem a homebuyer who makes a 20% down payment doesn't have.


What’s even better than recurring savings account deposits? Automated savings account deposits that you don’t have to remember to execute each month. Most banks allow recurring savings transfers from internal or external checking accounts. Examine your budget and determine how much you can afford to save each pay period or month, and then make it happen, preferably on the same date (or the day after) you receive your paycheck or direct deposit. Again, consider a separate savings account just for your down payment fund. If you’re looking to open a new account, go with one of these bank account promotions so you can make the most of the opportunity.
Each mortgage lender (LendingTree is just one example) will scrutinize your financial background—such as your debt-to-income ratio and assets—and use this info to determine whether to loan you money, and what size monthly payment you can realistically afford. This will help you target homes in your price range. And that's good, because a purchase price that's beyond your financial reach will make you sweat your mortgage payment and puts you at risk of defaulting on your loan.
Let the serious shopping begin! By now you’ve talked things over with your agent and you both know what you really want and need in a home. Armed with this, your price range and knowledge of the local area, look at listings online and with your agent, who will come up with properties for you to tour. Chances are you’ll discover some new things to love or hate about homes and refine your search.
Los Angeles, California: it's a city that needs no introduction, especially if you're hunting for a home. From its pulsating nightlife to its lively beaches, its star-studded events to its world-class attractions, the list of reasons to call Los Angeles home is extensive. You needn't look far to find entertainment in the City of Angels, either. There's the stunning architecture, lush gardens, and impressive art collection of the Getty Museum; Griffith Observatory's breathtaking views of both Beverly Hills and faraway planets; and the silver-screen excitement and thrilling rides of Universal Studios Hollywood, too.

In turn, the lender will use this info to decide whether or not to loan you money, as well as how much and at what interest rate. If a lender sees some late payments on your credit cards or other blemishes in your credit report, this can lower your odds of getting a loan with a great interest rate, or perhaps even jeopardize your chances of getting any loan at all.
Down payments also protect buyers from negative equity if the market suffers a downturn. If you put 3 percent down and the market value of the home soon falls by 5 percent, you’ll be upside down on your mortgage by 2 percent; you’ll owe more than what the house is worth. However, if you had put down 20 percent, then you’ll still have equity in the home. A substantial down payment to reduce negative equity risk is not only attractive to lenders, but is also helpful in the event that owners need to sell the home for some reason.

The content on MoneyCrashers.com is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. References to products, offers, and rates from third party sites often change. While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. We may have financial relationships with some of the companies mentioned on this website. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors.


The information set forth on this site is based upon information which we consider reliable, but because it has been supplied by third parties to our franchisees (who in turn supplied it to us), we can not represent that it is accurate or complete, and it should not be relied upon as such. The offerings are subject to errors, omissions, changes, including price, or withdrawal without notice. All dimensions are approximate and have not been verified by the selling party and can not be verified by Sotheby's International Realty Affiliates LLC. It is recommended that you hire a professional in the business of determining dimensions, such as an appraiser, architect or civil engineer, to determine such information.
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However, the devil is in the details. You have to pay back your 401k loans, with interest – typically at 2% above the prime rate. On larger loans, that means several years’ worth of three-figure monthly payments and several thousand in interest charges. Plus, if you take out a 401k loan before applying for a mortgage loan, your credit utilization ratio will spike, which could raise your mortgage loan’s interest rate or cause the bank to think twice about lending to you in the first place.
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