Top-ranked advisors suggest 4 strategies for increasing your home down payment savings.

• Coming up with a down payment can be daunting with high home prices.
• Experts suggest that various investment and savings options can increase your funds' return.
• One financial advisor stated that the best option for you will depend on when you need to access the money.

Saving for a home down payment can be difficult due to high real estate prices, but utilizing the right assets can help increase your balance.

Ryan Dennehy, principal and financial advisor at California Financial Advisors in San Ramon, California, stated that the "biggest driving factor" is when you actually need the money. The firm ranked No. 13 on the 2024 CNBC FA 100 list.

"When do you require the money - six months or six years from now?" he inquired.

Financial advisors typically suggest keeping funds for short-term objectives out of the market. However, there may be more flexibility for intermediate-term goals of three to five years. Nonetheless, it's crucial to prioritize safeguarding your balance to avoid any market downturns affecting your ability to make a home offer.

You don't have to keep your down payment funds in a basic savings account.

Determining how much money you may require and exploring various secure methods for increasing your funds.

How much you need for a down payment

Determining how much money you require can aid you in estimating your timeline and selecting the most suitable assets for your down payment.

The median sales price of U.S. homes in the second quarter of 2023 is $412,300, according to the U.S. Census via the Federal Reserve. This is a decrease from $426,800 in the first quarter and from the peak-high of $442,600 in the fourth quarter of 2022, the Fed reports.

A homebuyer looking to put a 20% down payment on a $400,000 house may need to save approximately $80,000, according to certified financial planner Shaun Williams, a private wealth advisor and partner at Paragon Capital Management in Denver. The firm ranks No. 38 on the FA 100.

While a 20% down payment may be traditional, it's not necessary. Some loans require as little as 5%, 3%, or no down payment at all. Additionally, down payment assistance programs can help cover some of the cost.

The National Association of Realtors reported that in 2023, the average down payment was approximately 15%. First-time buyers typically put down around 8%, while repeat buyers put down around 19%.

If you put down less than 20% of the loan amount, the lender may require you to purchase private mortgage insurance (PMI), which can cost between 0.5% and 1.5% of the loan amount annually, based on your credit score and down payment, according to The Mortgage Reports.

4 ways to grow your down payment savings

Depending on your timeline for buying a home, the amount you've saved, and how quickly you need access to the funds, advisors suggest several options to consider.

1. CDs

A CD allows you to secure a fixed interest rate for a specified duration, according to Dennehy. CDs can be purchased through banks or brokerage accounts.

The length of terms for CDs can range from a few months to several years. The annual percentage yield will be influenced by factors such as the interest rate at the time of purchase, the length of the CD, and the size of the deposit.

If you need to access the funds before the CD matures, some banks may charge a penalty that reduces the interest earned, Dennehy said. However, other banks offer penalty-free CD options.

Brokered CDs typically do not impose a penalty for early withdrawal, but you will be charged based on the CD's value on the secondary market, and you may also have to pay sales fees.

According to DepositAccounts.com, as of Oct. 23, the top 1% one-year CDs have an average annual percentage yield (APY) of 5.22%, while the national average rate is 3.81%.

2. Treasury bills

Treasury bills, backed by the U.S. government, provide a guaranteed return with terms ranging from four to 52 weeks. However, the asset's liquidity may vary depending on the location of purchase.

T-bills currently have yields well above 4%.

Dennehy stated that you can choose between a short-term or long-term Treasury based on your goal timeframe.

Treasury interest is not subject to state or local income tax, but it is subject to federal taxes. In comparison to CD rates, Treasurys can provide a "comparable rate with less of a tax impact," according to CFP Jeffrey Hanson, a partner at Traphagen Financial Group in Oradell, New Jersey. The firm ranks No. 9 on the FA 100.

3. High-yield savings accounts

An account with a high yield earns more interest than typical savings accounts, allowing your money to grow at a faster rate.

The average interest rate for high-yield accounts is 4.64% as of Oct. 23, according to DepositAccounts.com, while the national average for savings accounts is 0.50%.

As you get close to starting your home search, a HYSA's ease of access makes it especially suitable.

If you plan on purchasing in the upcoming year, high-yield savings accounts are excellent, according to Williams.

4. Money market funds

According to Dennehy, a money market fund typically offers a higher yield than a HYSA. As of Oct. 23, some of the highest-yielding retail money market funds are close to 5%, as reported by Crane Data.

A HYSA is usually insured by the Federal Deposit Insurance Corp., but a money market fund is not, according to Dennehy.

According to Vanguard, money market funds are low risk and are designed not to lose value. They may be eligible for $500,000 coverage under the Securities Investor Protection Corp. (SIPC) when held in a bank account.