Certificate of Deposit (CD)
Definition and meaning of Certificate of Deposit (CD) in real estate.
A certificate of deposit is a low-risk financial product offered by banks that pays a fixed interest rate in exchange for holding a depositor's money for a specified period. The funds must remain in the account until the maturity date, which is the date when the investment period ends, to avoid withdrawal penalties.
In more detail
Home buyers often use certificates of deposit to safely grow their savings for a down payment or closing costs. Because these accounts are federally insured up to statutory limits, they offer a secure alternative to the stock market for short-term savings. When applying for a mortgage, lenders will accept bank statements showing certificate of deposit holdings as verified assets for reserve requirements.
However, buyers must align the maturity date of the certificate of deposit with their home shopping timeline to ensure they can access the cash when it is time to close.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Common abbreviation | CD |
| Risk profile | Low risk, usually backed by federal deposit insurance |
| Mortgage status | Accepted by lenders as verified cash assets |
A couple puts their down payment savings into a twelve-month certificate of deposit to earn a guaranteed return while they search for a home to buy.
Frequently asked questions
Can you use a CD for a mortgage down payment?
Yes, mortgage lenders accept funds from a certificate of deposit as long as the account matures or can be liquidated before the closing date.
What happens if you withdraw funds from a CD early?
If you withdraw funds before the maturity date, the bank will typically charge an early withdrawal penalty, which is often calculated as several months of interest.