It may come as a surprise, but before giving you a mortgage, many lenders want to see more than just enough money to cover down payment and closing costs. Lenders want to know you’re financially secure and can cover future mortgage payments. Here is a rundown of how much cash you need to apply for a mortgage.
Additional Cash Reserves
If you’re purchasing a single-family home, most lenders require that you have enough money to cover two months’ mortgage payments. However, this varies by lenders—some may require you to have enough to cover six months’ payments, while some may not ask you to have any additional cash reserves.
Lenders who require you to have reserves do so to be sure that you have a backup if you lose your income stream and will not default on your loan. If your monthly mortgage payment, including insurance and taxes, is $2,500, ensure you have at least $5,000 in your savings.
Seasoned Savings
You must be careful with your savings. Lenders want your savings to be seasoned, that is, they should’ve been in your account for at least 2 months before you applied for the mortgage.
Lenders can verify this information as you are required to submit your last two months’ bank statements. This requirement exists to ensure you have a good financial standing and can handle making the mortgage payments.
To show this amount, don’t transfer a large amount of money into your account a week before applying for the mortgage. Lenders want to verify you have a history of healthy savings, a lack of which shows you’re not a responsible borrower.
The Money Saved For Closing Costs And Down Payment Doesn’t Count
The money you save for down payment is not counted as a part of your savings reserve. Closing costs can be high too. Unless you can convince the seller to cover them or get them included in your mortgage loan, you have to save up for these too. However, the lender will not see what you save for closing costs will not be seen as a part of the savings reserve either.
It is likely you may forget that lenders want to see additional savings before approving you for a mortgage loan. However, it is important that you start building a large cash reserve beforehand.
