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Why home buyers need cash reserves

On Behalf of | Dec 18, 2019 | Residential Real Estate |

Those who are looking to buy a home in California or any other state must be financially stable enough to do so. Generally speaking, banks will require borrowers to have an equivalent of up to three months’ worth of income in a savings account. Furthermore, buyers may need to have thousands of dollars available to pay closing costs and make an earnest deposit. Banks generally require borrowers to have a cash reserve to ensure that they have money available to make future payments.

In some cases, lenders will provide leeway as to what they consider a large enough cash reserve. Those who have money tied up in relatively liquid assets may be approved for a loan even if they have don’t have a lot of money in a savings or checking account. The type of loan that a person is seeking may also play a role in how large his or her cash or asset reserve must be.

For instance, someone applying for a VA or USDA loan may not need a cash reserve at all. Individuals who have good credit may also be approved for a home loan regardless of their financial position after the transaction closes. However, it may be a good idea for a buyer to have a cash or asset reserve to account for maintenance or other costs that could arise.

Those who are looking to purchase residential real estate may benefit from doing so only after accumulating sufficient savings or other assets. An attorney may be able to explain why lenders require cash reserves and how they may benefit both a lender and a buyer. A legal representative may also be able to help negotiate concessions from a seller or a lender prior to a home sale officially closing.