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Health & Fitness

Poli Mortgage Answers Three Questions about Reserve Cash

CEO of Poli Mortgage, Chip Poli, answers three of the most asked questions regarding reserve cash.

1)      Why should I have reserve cash on hand after making the down payment and paying out other associated costs on my mortgage loan?

When you apply for a mortgage loan, your bank or lending agency is going to scrutinize your financial situation. Your lender is taking a risk by extending you a mortgage loan, and will want the reassurance that if you lose your income or are unable to work for a period of time due to illness or injury, you will still be able to make your mortgage payments on time until the crisis blows over. Most lenders will want to see that you have the ability to cover at least three months of living expenses should an unforeseen occurrence arise.

An oft-quoted rule of thumb regarding emergency savings is that you should strive to keep three to six months of living expenses available in case of unforeseen circumstances like a job loss or period during which you are unable to work due to illness or injury. Now that you are a homeowner, your monthly expenses will obviously include your mortgage payment. However, if you have never owned a home before, it might be difficult to determine how your other monthly living expenses might evolve with the additional responsibility of home ownership. If you have been living in a smaller home or renting an apartment, you are bound to see a change in monthly utility costs and if you’ve never owned a home before, you’ll soon find that you’ll see more maintenance costs than when you were renting. Erring on the side of caution and stockpiling more savings than you might have in the past is probably a wise idea. Your lender should be able to help you determine a reasonable expectation about what your total monthly living expenses will be once you have moved into your new home.

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2)      Are there other reasons that I should have reserve cash on hand after close?

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Beyond the obvious safety net of keeping an emergency fund on hand for unexpected costs that can crop up in life, it’s important to remember that buying a home entails a lot of hidden costs. Once you’ve moved into your new property, there will doubtless be many things you will want to do to make your home “your own,” from painting to minor remodeling projects to new furnishings and window treatments that fit your space. You may incur costs that you haven’t seen before in terms of lawn care and general home maintenance. If you haven’t budgeted for these possibilities, you could find yourself waiting quite a while before you can personalize your new home.

 

3)      What if I can’t manage to stockpile several months of reserves?

It all depends on your lender. If you are seen as a high risk for a conventional loan due to the lack of reserves necessary to cover several months of mortgage payments, you may not qualify for that loan. The best thing to do is discuss your financial situation with a reputable mortgage broker.  There are certain loans available that don’t carry stringent guidelines about what you must have reserved in savings at close. Bear in mind that qualifying for such a loan generally requires an excellent credit rating.

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