Saving for a down payment on a home is a major financial goal for many people, but that effort shouldn’t get in the way of investing for other long-term goals such as retirement. However, there are things you can do to boost your savings until you’ve bought a home without sacrificing too much in terms of investing for retirement.

“It’s critical to save for retirement even if you’re saving for a house. If your employer matches your 401(k) contributions, then contribute up to the match,” says Joel Shaps, former vice president at Goldman Sachs Personal Financial Management. “The minimum I would save is the matched contribution because that’s like free money.”

Home savings statistics

Home Equity
  • 73 percent of aspiring homeowners cite affordability factors as the main obstacles holding them back, according to a 2023 Bankrate survey.
  • 40 percent of aspiring homeowners said the inability to afford a down payment and closing costs were a major hurdle to buying a homes, the Bankrate survey found.
  • Bankrate found that many people would be willing to sacrifice in order to afford a home including downsizing, moving out of state or buying a home that needs improvements.
  • The median sales price for homes sold by realtors in March 2023 was $380,000, according to the National Association of Realtors (NAR).
  • The typical down payment on a home for first-time buyers is around six to seven percent, according to NAR.
  • Repeat home buyers tend to put more money into the down payment, contributing around 17 percent of the home price in recent years, according to NAR.

Using retirement money for a house

Financial experts universally frown upon withdrawing retirement money for anything short of an emergency, and this includes buying a house. However, there might be circumstances that justify using some of your retirement savings for a home purchase. For example, if you come upon a great deal and don’t have access to a down payment. You can tap your Roth IRA or traditional IRA for up to $10,000 without penalty or tax for the purchase or remodel of a first home.

The same leniency doesn’t apply to 401(k)s. If you pull money before age 59½ from your 401(k), with a few exceptions, you’ll be assessed a 10 percent early-withdrawal penalty on the amount you withdraw and you’ll have to pay income taxes on that money. Using 401(k) funds is clearly a last-ditch solution for coming up with down-payment money. You may, however, be able to borrow money from a 401(k) to buy a house. The IRS allows someone to borrow up to 50 percent of their vested account balance or $50,000, whichever is less, for a primary residence purchase.

Saving for retirement and a house at the same time can be challenging. You might not be able to max out your 401(k) contributions, which for 2023 is capped at $22,500 per year for people under age 50, while you’re stuffing your down payment piggy bank — but saving some retirement money is far better than nothing.

Savers can also put their money into an IRA, which gives retirement investors major tax advantages. A traditional IRA allows you to save pre-tax money and build up your nest egg, which is only taxed once the funds are withdrawn. A Roth IRA taxes the money upfront, before it’s invested, so you don’t have to pay taxes when you start drawing from it during retirement.


Money tip: If you’re looking for additional ways to make money, consider finding a passive income strategy that works for you. It may help you achieve your savings goals faster.

Short-term savings options

If you plan to buy a house within five years or less, then you probably don’t want to save your house money in something volatile like the stock market. While stocks have generally performed well over the past five years, they’ve seen some sharp downturns along the way, such as during the onset of the COVID-19 pandemic and most of 2022 as investors grappled with rising interest rates.

The stock market is for people who can keep their money invested over the long term, which is a minimum of about 10 years, Shaps says. For short-term savers, FDIC-insured products are best.

There are several investment options to choose from if you’re saving for short-term goals. Here are some to consider:

  • High-yield savings account: These savings accounts at online banks earn higher rates of interest than traditional savings accounts and are still FDIC-insured.
  • Money-market funds: A money-market fund is another improvement over what you’ll get from most checking or savings accounts, but these funds aren’t FDIC-insured.
  • CDs: A certificate of deposit, or CD, invests in short-term securities to earn you more than you would from a typical savings account. Be sure to understand how long your money will be tied up in the CD before committing funds. CDs are FDIC-insured.
  • Treasuries: Treasury securities are issued by the federal government and are generally considered risk-free when it comes to credit risk. However, your investment could still lose value if interest rates rise or the bonds fail to keep up with inflation.

Look at low down-payment loans

Consider how you plan to finance that new home. You can finance it with as little as 3.5 percent down with a Federal Housing Administration, or FHA, loan. Other low or no down payment options exist through Fannie Mae, Freddie Mac, Veterans Administration, and the USDA Rural Development Program. While there are costs associated with this type of financing — including mortgage insurance premiums (PMI) — you can balance those costs against the potential for rising home prices and mortgage interest rates.

There may also be programs within your state to make it easier for first-time home buyers to afford a home. Check to see if you meet the qualifications for any of these kinds of programs.

Compare the options available with the costs of conventional financing. You may decide it’s worth it to go with a low down payment program and get into your first home sooner, rather than saving up for a 10 percent to 20 percent down payment. The average first-time homebuyer puts down about six percent of the home price, according to the National Association of Realtors. Repeat buyers have put down around 17 percent in recent years.

Investing while saving for a house FAQ

  • Investing while saving for a down payment on a house can be a challenge, but it’s important to still save for retirement so that you are on track to meet your long-term goals. Make sure you’re contributing the necessary amount to receive your employer’s full 401(k) match, if one is available. Financial advisors consider this to be free money, so you don’t want to forgo the opportunity.
  • When saving for a down payment, you can invest the money to get some additional return without taking too much risk. Consider putting your down payment savings into a money market fund, CD or short-term bond fund. Many of these options are low risk and will help you achieve your savings goal a little bit faster than if the money just sat in your checking or traditional savings account.
  • How much you’ll need to buy a house will depend on a number of different factors including the price of the home, the amount of your down payment and your mortgage rate. Consider using Bankrate’s new house calculator to determine how much money you’ll need.

— Natalie Campisi contributed to a former version of this story.