Defer Your Mortgage Down Payment and Save

With fewer homes selling and prices falling, a would-be home buyer might well stay on the sidelines for a while. Then what should you do with all that down payment money?

Most lenders are requiring 20% down payments, or $60,000 for a $300,000 home, and $10,000 more might be needed for closing costs such as points and title insurance. Buyers who are trading up get the cash from the sale of the old home, and generally try to have the sale and purchase occur as close together as possible. But first-time homeowners have to assemble a chunk of cash from other sources.

If you have the money together to buy now but decide to wait, the cash has to be stored somewhere. And the way the housing market is going, you could be storing it quite awhile – say, three, six or even 12 or more months before you feel a purchase is a safe bet.

Typically, home buyers store cash in checking, savings or money market accounts, where it’s easy to access. But the typical money market account currently yields a mere 0.249%, according to the BankingMyWay survey, and checking and savings accounts are even stingier.

If you want to be ready to jump on a home on short notice, there’s really no better alternative. Most cash and cash-like holdings, such as short-term bond funds, either pay very little or require living with some price fluctuation. It would be a shame to reach for yield with a bond fund only to lose money because share prices were down right at the time you decided to jump on the perfect home.