If you are on the lookout for a new home to purchase, you are likely to have started saving up for the down payment and closing costs. But, did you know that having some additional savings stowed away actually increases your chances of getting approved for a mortgage?
Why Do You Need Additional Savings?
Most lenders like to know that you have enough savings to cover future payments in case of a financial setback. Given this, if you can provide proof of your savings, you will likely have a much easier time getting your loan approved.
The amount of savings you will need is likely to vary based on the type of home you are buying. If you are purchasing a single-family home, it’s a good idea to have enough savings to cover the mortgage payments for at least 2 months. Some lenders, however, will require you to have enough money to cover your payments for a minimum of 6 months.
So, the more you have saved up, the higher are your chances of getting approved for a mortgage.
Seasoned Savings Are Important
While it’s important to have adequate savings in your account, lenders also like to know that your savings are seasoned. This means the money will need to have been in your account for a minimum period of 2 months. So, don’t make the mistake of depositing a large amount of money into your bank account a few days before applying for the mortgage. Even if you received the sum of money as a generous gift or loan, your lender will likely not consider it as sufficient proof of savings if it is deposited in your account too close to when you are applying for the mortgage, since it doesn’t really speak of your ability to save responsibly.
Don’t Rely On The Money Saved Up For The Down Payment
While you may have saved up even 20% of the home’s potential purchase price and some extra for the closing costs, keep in mind that this sum of money is not considered part of your additional savings, given that these are payments you will mandatorily have to make when getting a mortgage.
So, if you are considering buying a home, make sure to start saving right away!
