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When thinking about buying a home—first things first—you have to think about how you’re going to afford it. In this blog post, we dive into different ways you can save effectively depending on where your dream home lives on your time horizon.
Check out our main blog post on everything home-buying to learn more about how much home you can afford, how to finance a home, and more here!
If you’re less than 1 year away from purchase:
If your home purchase is coming up soon, and you want to secure your dream home, you have to make sure you have the savings to do so. So if you’re less than a year away, we suggest that you allocate savings into a High Yield Savings Account. What is that? High yield savings accounts are offered by banks that have no physical property. Because there’s no costs that come with having brick-and-mortar locations for these banks, they are able to offer rates twice that of regular banks. An average high yield savings account rate is around 1% (this rate shifts often - so check out the latest here)! Which is incredible! Services like Marcus or Ally can offer you high yield savings accounts like this. You can also check Bankrate.com for the highest yield, or use a tool like MaxMyInterest.com that will scour the different high yield savings accounts being offered and constantly keep your money at the bank with the best rate.
If the purchase is 2-5 years on the horizon:
If you have some breathing room before you decide to make the big life step, now you have more time to save! For this timeline, we would recommend investing conservatively. What does that mean? Allocating 30% to equities (plain-talk: stocks) and 70% to fixed income (plain-talk: bonds) in low-cost indexed ETFs. This 30/70 rule sits very close to a 0% return even at the worst of times, including the recession. So it’s a safe bet to invest your money this way in preparation of buying a home. Check out our blog post on Sabbaticals and Quitting Your Job to learn more about the 30/70 split.
Another option is to invest in I-Bonds. An I-Bond is an inflation-protected US savings bond, with the US government guaranteeing you get your initial investment back with a 9.62% annual rate (as of June 2022). They are a really well-kept secret amongst financial advisors, because many advisors have no incentive to sell them since they’re cut out as a middle-man. Additionally, interest on I-Bonds is exempt from state and local taxes. This is an amazing deal hiding in plain sight. The only catch with I-Bonds is that you can only purchase $10,000 in I-Bonds per year, but that is still an amazing opportunity you shouldn’t pass up. To learn more about I-Bonds, see this WSJ article by Jason Zweig which summarizes just how awesome I-Bonds are.
If you’re looking for a specific yes / no answer, and want to walk through this decision with us? Reach out to me at firstname.lastname@example.org and schedule a call to set up a no-cost, no-obligation process for prospective clients.
Read more about all things home buying here:
- To Buy or Not to Buy a Home?
- How Much Home Can I Afford?
- How to Approach Financing Your Home Purchase
- How to Make Your Offer Stand Out in a Crowded Market
Interested in learning more about whether a home purchase is right for you and how you can best save for it?
Steward ‘s mission is opening up the 1%’s wealth strategies to America’s up-and-coming families with a combination of 21st century tech and trusted advisors. We help families determine how, where, and when to invest and save on taxes in plain-English, with minimal time and effort. Steward can help you determine if a home purchase makes sense, how much home you can afford, and how to invest and save in the most efficient way. Give it a try here.