Whether you are about to purchase a home, a car or another large asset, you are likely going to need a down payment. Saving for a down payment seems pretty straight forward, but if you’d like to maximize your savings and reduce the time needed to reach your goal, your best bet is wisely investing those funds.
An appropriate down payment on a new home can be a very large sum.
A house is often the biggest investment many people will make in their lifetimes. So for the purpose of this article, we will focus on saving for a down payment on your home.
When getting ready to make this investment, you should have been setting aside money for the down payment. And, you should be aware that saving 20% of the purchase price can reduce your overall cost of your new home. This is because many lenders require mortgage insurance or PMI to secure a loan of over 80% of the purchase price. PMI is not cheap so avoiding this cost can save you a bundle.
With that being the case then you don’t want to make any financial mistakes while saving for your down payment. If you take on too much risk, you may not be able to afford the house you want, and if you don’t any risk you may miss out on free money, lose to inflation or risk saving for many years to reach your goal.
How long will it take to save a 20% down payment for my home?
The short answer is: “it depends”. The amount of time taken to reach your savings goal depends on several factors: First, how much do you need to save to reach your down payment goal? Second, how much can you save per month toward this goal? Third, what is your rate of return on your savings?
The first two questions depend on you and your unique situation. Maybe you can answer them on your own, or maybe you need the help of an experienced financial advisor. To be sure, it makes sense to take the time to speak to a fiduciary advisor who has the training to determine the investments that are in your best interest for your unique situation.
How can DreamWork Financial Group help?
At DreamWork, our goal is to help you develop a strategy that includes answers to all 3 of those questions. In the case of a down payment for your home, I would recommend a conservative strategy, like our Lento fund. With close to 90% invested in fixed income and 10% in stock, it gives you a nice balance of capital preservation while also giving your savings some stock exposure that should help counter inflation over time.
Our Lento Fund has flexibility and the liquidity that is necessary for people near their goals who don’t want to stress about the stock market moves. If you are looking to invest your down payment money or are saving for any major upcoming purchases, please contact us as we’d love to help.