What investment vehicles would you recommend when saving for a down payment on a house? With saving rates being so low, including CDs, where can you keep money being saved within a two-year time frame? – Teri


First off, let me say that I love the fact that you are saving for that down payment. As you probably know, when it comes to buying a new home, it’s not just the down payment you need to fund. Inevitably, there are a host of other expenses that crop up – from living-room drapes to lawn mowers to maintenance and renovation – when you make the big leap. So I always encourage people to set up a “move-in” fund for their down payment and everything else that comes with fulfilling the American Dream.

Where do you invest this move-in fund? Well, you don’t. Rather, you save it, because you don’t have much time. And time is the key factor. You indicated that your goal is less than two years away. In that case, I would recommend focusing on a low-to-no-risk high-yield savings account or Certificate of Deposit (OK, in today’s low-interest-rate environment, “high-yield” is a bit of a stretch). This conservative approach will help ensure that the hard-earned money you’ve set aside for your new home does not suffer in the volatile stock and bond markets. For readers who have a bit more time, let’s say two to five years, something like a short-term bond fund could be appropriate. For longer-term goals, a mix of stocks and bonds may make sense.

I’m a big fan of building immediate equity in your home, which is typically accomplished by making a significant down payment. But don’t forget to look at a Veterans Affairs loan when you’re evaluating options, as it may allow for 100-percent financing. If you’re buying a fixer-upper (which is my usual M.O.), a VA loan can be a great way to finance a bigger percentage of your mortgage, retaining some cash for renovations. In fact, that’s exactly what I did when I bought my home several years ago. Instead of pouring money into the mortgage to build equity, I used my cash to launch a series of renovations, which over time has increased my home’s value. So, you see, there’s more than one way to skin a cat.