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What are cash reserves and why you need them to buy a home | Forbes

Most people know it takes the money you have in the bank to buy a home, however, they don’t know how much more they will usually need. Of course you need the down payment and the closing costs; but did you know that the bank looks at how much money you have in cash reserves? It is actually a vital component to buying a house. Cash reserves are any liquid assets that someone has after their down payment and closing costs have been paid for. Liquid assets include anything that can be turned into cash quickly, such as money from your checking or savings account, retirement accounts and investment accounts.

Why is this so important to have in order to buy a house? The bank wants to have assurance; they want to make sure you can pay for the upcoming mortgage payments, which includes a variety of costs. It’s not just one item line, one number. A mortgage payment includes the initial loan, interest, property tax, home owners insurances, and mortgage insurance. Depending on the loan and the property, payments can vary and the amount of cash required is different. It is recommended that if you have a FHA loan, that you have 3 months reserved; conventional, 0-6 months; and VA and USDA, no requirement.

Source: https://www.forbes.com