5 Ways to Invest a Down Payment for a House

Forgoing your weekly takeout pizza, staying away from poker night—you’re working hard and saving harder. Having enough for a house down payment can take years, especially if you want the house of your dreams. But if you work hard enough, you’re going to get there.

What if you could get your down payment faster? If you've been spending hours scrolling through houses on Zillow, counting down the days until you can finally say ‘I want to make an offer’, then it's time to do more with your savings.

Instead of leaving your down payment sitting in a traditional savings account earning next to nothing, investing it can earn you returns that will make your dream purchase faster. You'll want to look for investments that are lower in risk so you can earn some coin without losing your down payment. It's also helpful to consider whether you prefer active or passive investing. If you're just trying to grow your down payment on the side, low effort investments are probably the best choice.

Here's what you need to know to make the most of your house down payment.

The bigger your down payment, the more you'll save on your mortgage. Making a bigger down payment usually means you’ll have lower monthly mortgage payments and more home equity from day one.

Let’s say you want to spend $400,000 on a home. If you aim for a 20% down payment, that would be $80,000. 

The approximate monthly mortgage payment with a 20% deposit on a $400,000 home is $1,437 over 30 years at a 3.5% interest rate. While you can put a lower deposit on a home, many lenders will require you purchase mortgage insurance. 

If you were only able to put down a 10% deposit, you’d be paying at least $1,617 per month—and that doesn’t include any higher interest rate or mortgage insurance payments you'd incur. That being said, it can make sense to put down a lower payment if you don't have a lot of spare cash. Draining your bank account to buy a house would leave you with nothing to cover repairs and emergencies. 

Aiming for a 20% deposit may not be the type of flex you had in mind. So, how about working smarter and not harder? Make your down payment go further by investing it in one of these five ways.

So, how can you begin to make some extra dime without running the risk of losing your down payment altogether? 

These five investment methods are an easy way to start making your down payment work for you.

No, we’re not talking about those silver discs that play music. In finance terms, CDs are a type of savings account. It's held over a fixed period of time, and you earn more interest for agreeing to keep your money in place for that set term. Usually, the longer the term, the higher the interest rate.

If you withdraw money before the CD term expires, you can incur penalty fees. However, this is a great option for a down payment since you probably already have an idea of exactly when you'll need to access it. Plus, CDs are insured so you don't run any risk of losing your money.

Placing your down payment in Quontic for 5 years gives you a 1.11% annual yield, and you can get started with just $300 in savings. Let’s say you deposited $10,000, adding $100 each month. After 5 years, you would have about $16,770 saved up—and $770.24 of that would be from interest alone. You can opt to save for a shorter period, although you'll get a smaller annual interest yield. If you prefer to have  some liquidity, or you’re close to your down payment goal, this may be a better option for you.

Quick Facts about Quontic:

• What returns can I expect? Up to 1.11%
• How risky is it? No risk
• When can I withdraw my money? 6 months to 5 years

Algorithms aren’t just for Instagram. Robo advisors are platforms where algorithm-based finance services are automated to help you reach your financial goal. 

With M1, you can start investing with just $100, gaining a return through dividends and stock price appreciation. You can use M1’s automated service to rebalance your account automatically. The platform even lets you buy fractional shares, or a portion of one share, so you can invest in big companies even if you don't have big money (yet).

Returns vary depending on which one of the 80 prebuilt portfolios you use. Imagine you invested $10,000 with a targeted return of 8%. Over 3 years, this would generate $2,597.12. Robo advisors can work well for down payments of all sizes. If you only want to invest for one or two years, you can withdraw your funds and use them to help buy that dream home.

Quick Facts about M1:

• What returns can I expect? Varies
• How risky is it? Some risk
• When can I withdraw my money? 7 days after depositing cash

Imagine getting together with 500 friends and pooling $1000 each to purchase a property. If you don’t have that many friends, don’t worry. Putting your cash into a REIT enables you to group your money with other investors and invest in income-generating real estate without even buying property. Instead of having to manage things like maintenance, you get to rake in the profits while someone else takes care of the dirty work.

An app like Fundrise allows you to get started with just $10. If you’re worried about the risk of investing your down payment, you can start with a small amount and build up your investment over time. Fundrise aims to give you a 9% to 12% return on your investment, with dividends paid quarterly. 

So, if you invested $1000 and added $100 each month with a 9% return, you'd have $9,046 after five years. If you kept that money in a savings account, it would be more like $7,000. Fundrise works best for those wanting a long-term investment of at least 5 years.

Quick Facts about Fundrise:

• What returns can I expect? 9% to 12% return
• How risky is it? Some risk
• When can I withdraw my money? 5 years

Farmland investing allows you to earn money from crop sales and appreciation of land. 

FarmFundr provides the opportunity to invest in American farms via fractional farmland ownership. Investors can choose the best farm investment for their portfolio for a minimum of $10,000. 

Each investment offer is individually structured to give you the best return long-term. If you’re hoping to grow your down payment over a period of at least 5 years, then FarmFundr can work well for you. Investing $10,000 over 5 years would give you a projected return of $5,979.22 after fees, leaving you with a down payment of almost $16,000.

Quick Facts about FarmFundr:

• What returns can I expect? 11.5%
• How risky is it? Some risk
• When can I withdraw my money? 5 years

Grow your savings faster without any risk. A high yield savings account with Axos gives you daily interest on your down payment without any fees. You can begin saving with just $250, and you can request a free ATM card to access your money at any time. 

If you open an account with $5,000 and deposit another $100 monthly for 5 years, you'll earn about $260 in interest and end up with $11,260 for your down payment. While you may not gain as much as other investment methods, your account is insured, so you don't run any risk of losing your money. Plus, you can withdraw your funds at any time, making this highly attractive to those who want to earn a little more with investing.

Quick Facts about Axos:

• What returns can I expect? 0.60%
• How risky is it? No risk
• When can I withdraw my money? Immediately