How Much Cash Do You Need in Reserve When Buying a Home?

Purchasing a home can be both an exciting and a daunting experience, especially for those already worried about the end price. This is why so many real estate experts and those who've purchased a home before will tell you to have a certain amount of money in reserve. But how much do you really need to save up? Here are a few factors that occur during the buying process that determine that number and how much you should have readily available. 

What Exactly Is a Cash Reserve?

A cash reserve is essentially liquid assets that you have left over after you've paid your down payment and any closing costs associated with the deal. These assets can be anything from property that can quickly turn into cash or an actual savings account with at least six months of mortgage payments. 

Why Do You Need a Cash Reserve?

The fact is that although most home deals do go smoothly, you never know when a deal is going to go south. This can happen even after you've closed the deal on the home, and you’ve paid all your closing costs. An issue that can arise after the deal is someone filing a claim against the home. Even if nothing does go wrong on the business end of the deal, you do have to protect yourself from emergencies. Losing a job or needing emergency surgery can really cause financial strain on people. Plus, banks are more likely to lend you money if you can prove that you have enough to pay them even during an emergency. 

How Much Money Do You Need?

First, it should be noted that the amount of reserve cash you should have is often determined by the type and size of the property. However, there are some guidelines you can follow to get a feel for how much you should have depending on the type of loan you've received. If you have an FHA loan, you should have at least three months' worth of mortgage payments in the bank. If you've opted-in for a conventional loan, then six months would be your best bet. Those receiving aid from the VA can usually count on the VA to provide you with assistance in the event of an emergency, but you should still have at least three months' worth in the bank. 

Buying a home can be a great experience, but you want to make sure you’re prepared when you jump into such a large purchase. Having some cash in reserve can give you the peace of mind that you need to make your home-buying process smooth.


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