Where to put your money when saving for a home

written by JACOB W. BARR

ARK FINANCIAL ADVISORS

Raymond James Financial Services Inc. member

As spring arrives, so does the busiest and most competitive time for buying a new home. So, if you plan to stop renting and purchase a home, make sure you are prepared.

Credit score, not biting off more than you can chew and proper spending habits all must be considered when house shopping. All of those contribute to one of the most important parts of buying a home – your financial picture.

When it comes to buying a home, it is common to need 20% of the home’s value available as a down payment. That can seem like quite a large sum to save, but if you use less than that, you will need to pay for private mortgage insurance, which can get pricey. So, it is to your advantage to be able to put down 20% of the home’s value.

How can you save and grow money to get to that value? The money used for buying a house needs to be easily accessible at any time. Additionally, the money should be in an account to which you can add money whenever you wish.

While it can be tempting to take a withdrawal from an Individual Retirement Account (IRA) or a 401(k), doing so is not typically advised due to taxes, penalties and the long-term cost of giving up compounding interest in such accounts. That could force retirement to be delayed.

However, there are several options for buyers to save and grow the money needed for purchasing a home. If you are looking to purchase a house in the near future (three to five years or less), then one of the best choices is to keep the money you need in a savings account. Or, if you are comfortable with using an online-only bank, such as Ally Bank, a high-yield savings account can provide you the same FDIC protection with a higher interest rate.

One option that might look appealing and tempting as a way to grow savings is the stock market. Due to the inherent risk associated with the market, and as a result of the ever-changing environment, it is possible that when the money is needed for the purchase, it can be below its original value.

When deciding what is the best option for you, evaluate your whole financial picture, timeline and tolerance for risk. Discuss things with your financial advisor and tax accountant, and anyone else involved in the decision-making process, such as a spouse or partner. Home buying is not a one-size-fits-all process, and neither is saving for that purchase. — Places

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jacob Barr and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss, regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Securities offered through Raymond James Financial Services Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors Inc. Ark Financial Advisors is not a registered broker/ dealer and is independent of Raymond James Financial Services.