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How to Store Your Down Payment Money

Buying a house is a big milestone for first-time homebuyers. For many people, it takes years of careful planning and diligent savings to find the money for a down payment and closing costs. Once you have the down payment money, shopping for a home in a competitive market can take several months, with multiple offers and potential setbacks, before you find a seller to accept your offer and go into contract.

After all this planning and waiting, once you’re cleared to close on your mortgage, the pace of the process accelerates. Before you know it, it’s time to transfer your down payment money to your lawyer (or the title company, depending on your state’s laws) for the closing.

Between a down payment of 3% to 20% of the home’s purchase price and closing costs of 1% to 3% of the amount borrowed,1 you might need to transfer tens of thousands of dollars. You can’t show up to closing with cash or a personal check, so how can you ensure the money is readily available when you need it without any last-minute complications?


Why Is Accessing Your Down Payment Money a Problem?

One of the major challenges many borrowers face when it’s time to transfer their closing funds is uncertainty about total closing costs. Lenders are required to provide a Closing Disclosure listing all closing costs and the amount you need to bring to closing at least three business days before your scheduled closing.2 Still, this doesn’t give you much time to get a cashier’s check or wire the funds, and this tight timeframe can create a stressful situation if your money isn’t easily accessible.

Even cash in a savings or money market account can be tricky, depending on your financial institution. For example, if your account is with an online-only bank, you can’t simply visit a branch and ask for a cashier’s check. You might need to order a cashier’s check online or set up a wire transfer, which could take time.

Alternatively, you could transfer the money from the online bank to your account at a local bank or credit union. Again, this transfer might not be instantaneous; it could take three to four business days. And your financial institution might limit the amount you can transfer per day — or even per month. If that limit is less than needed to close, you could find that you are days away from closing on your dream home and you can’t access the funds in time.


Tips for Maximizing Your Savings (and Minimizing Closing Day Headaches)

To avoid unexpected hiccups, here are some strategies and best practices to help you manage your down payment funds and ensure a smooth and on-time closing.


Be Careful Using Online-Only Banks

Saving for a down payment in a high-yield, FDIC-insured savings account with an online bank can be tempting due to the attractive interest rates and penalty-free withdrawals. However, online-only accounts can limit your ability to access your money quickly.

Some online banks limit the amount you can transfer out at once. Depending on your financial institution, this cap might be $1,000 to $25,000 per day.3 And often, you can't initiate the next transfer until the first one clears.

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Consolidating your accounts at one bank can streamline accessing your money and help you quickly get a cashier’s check or wire transfer for closing.

Additionally, transferring funds to your local bank can take three to four business days, creating a major hurdle when you need the money promptly for closing. To avoid these issues, consider using a traditional bank to ensure you can access your funds quickly and efficiently.

Consolidating your checking, savings and certificates of deposit (CDs) within the same bank can streamline the process of accessing your money. Moving money between accounts is usually instantaneous when you keep your funds at one financial institution, allowing you to quickly get the cashier’s check or wire transfer needed for closing.


Save Your Money in Laddered CDs

CD laddering involves purchasing multiple CDs with staggered maturities. As each CD matures, you can keep the proceeds or reinvest in another. This approach allows you to earn higher interest rates than a traditional savings account while keeping your money relatively liquid.

Before choosing this option, make sure you understand the penalties and restrictions involved.

When you open a CD, you agree to keep the money in the CD for a fixed period. If you need to withdraw money before that time, the bank can charge an early withdrawal penalty. That penalty is usually a set number of days’ or months’ interest, and it may be based on your original deposit amount or the amount you withdraw early.4

Some banks impose a minimum penalty, so you'll pay the higher amount if your calculated penalty is less than the minimum. You could lose some of your principal if that minimum is more than you earned on the CD.

You can find your bank’s early withdrawal penalty in the paperwork you received when you opened the CD or call your bank to clarify these details and avoid surprises.

To minimize penalties, once you're under contract on a house, avoid rolling over any CDs that come due before your closing date. Instead, close these CDs and move the funds to a savings account, even though it will earn less interest.


Get an Estimate on Closing Costs

Request an estimate of closing costs from your lender or lawyer a week or two in advance. Although the exact amount might not be available until three business days before closing, having an estimate allows you to transfer extra money into your checking account.

For example, if the estimated funds needed at closing is $20,000, you might transfer $22,000 to $25,000 from savings to checking. That extra 10 to 20% should be enough to cover any last-minute surprises.


Consolidate Funds Before Closing

A week or two before closing, once you and the seller have resolved all contingencies like inspections and financing, start consolidating all your money into your checking account. This early preparation gives you time to address potential hiccups in transferring your funds so everything is in place for a smooth transaction.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information. Diversification does not ensure against loss.

  1. Melissa Dittmann Tracey, “States Where Closing Costs Are Highest, Lowest,” REALTOR Magazine, published November 3, 2023. Accessed October 29, 2024. Back
  2. CFPB, “Closing Disclosure Explainer,” accessed October 29, 2024. Back
  3. Tracy Sullivan, “ACH Transfer Limit – Everything You Need to Know,” Payment Savvy, published October 28, 2022. Accessed October 29, 2024. Back
  4. Trina Paul, “CD Early Withdrawal Penalties: What They and When They Make Sense,” Fortune, published June 14, 2024. Accessed October 29, 2024. Back