Sitting on a Down Payment for a Home? Here's Where to Stash It.
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Here's your money briefing for Wednesday, September 1st. I'm J.R. Whalen for The Wall Street Journal. Housing prices continue to rise at a record pace, and that's kept many would-be homebuyers on the sidelines. That means there are a lot of people who'd saved up for a down payment, got priced out of the market, and now are left with a large sum of cash on their hands. So what should they do with it?
What's difficult with down payments is that you want to be able to move quickly. So a lot of people are prioritizing liquidity and accessibility above all else.
Our personal finance reporter, Julia Carpenter, has been talking with financial experts about the best places for prospective homebuyers to park their down payment while they wait for the next buying opportunity. We'll talk with her about it after the break.
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What problem are prospective homebuyers facing with down payments right now?
Saving up for a down payment on a home has never been easy, but the current housing market has made it even harder. Prices are rising faster than ever before, bidding wars are growing more common, and the amount of inventory in the market remains too low to meet demand. That's left many potential homebuyers sitting on the cash they'd earmarked for a down payment and trying to figure out what to do with it. WSJ personal finance reporter Julia Carpenter has been researching that question and she's here to talk about it. Julia, thanks for coming on the show. Thank you for having me. So Julia, how much money are we talking about here? You know, how much do people typically save to buy a house?
So home buyers typically save between 5% and 20% for a down payment, of course, with extra for closing costs. And I was speaking with the National Association of Realtors, and they said that kind of breaking that number down, they see that it is 7% for first-time buyers and 16% for repeat buyers. So people who are setting aside a pretty significant chunk, but also there's a lot of wiggle room in between the first time and the repeat. So this money can really add up. Median home price right now is roughly $360,000. So 20% as a down payment would be $72,000.
Yeah, for a lot of people, that can be quite a bit of money to unexpectedly have on hand. So let's talk about how to invest that money. The cash is likely not what we'd consider to be a long-term investment, right?
Most people are thinking in terms of three-month increments. So if you've been on the house hunt now, had to put it on pause for a period of time, you're thinking, I'll wait three more months, try to see if that perfect house comes on the market, or maybe home prices will cool down a little bit, or they'll think, okay, we need a little bit more time to be competitive. We'll wait six months. Okay, we'll wait for... you know, nine months so that our kids can go through the school year and see where we're moving. So definitely not long term. But some people are thinking, you know, a whole year in advance. Some people are saying I would my goal was to buy a home this summer, and I'm going to wait till next summer.
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