How Much Liquid Cash Should I Have Before Making an Offer?
We all know it’s important to have the funds needed to buy a home readily available. However, one aspect buyers may not put enough time and thought into is liquid assets or liquid cash. When attempting to buy a home, you want to make sure you have everything you need to not only establish confidence with the seller but also with the lender who intends to supply you with a home loan.
What is a liquid asset?
Liquid assets are those that can be easily converted to cash in a relatively short period of time. Think of checking accounts and savings accounts and bonds and the like. You need to be able to transfer these funds over to physical money that can be used in a down payment or with closing costs.
Why are liquid assets important?
The main reason a lender decides to loan money to a particular client revolves around the idea that the client is a low risk and will therefore have the funds needed to pay back the loan. That’s why saving back money is so important. Not only is this idea a responsible practice, in general, but it also shows the lender that you won’t end up broke at the end of the buying process for a house. Having enough money saved in your checking and savings account shows them that you can convert this to cash on practically a moment’s notice.
How much should you plan to save?
The amount that should be saved to create liquid cash just depends on what type of home you’re moving into and what other taxes and fees will go into the buying process. Not only should you prepare for a down payment on a house – 10 to 20 percent should suffice – but you should also prepare for a liquid cash reserve.
A liquid cash reserve is simply a certain amount you have saved back in your bank account that can be used to pay for the first month or two of bills. A lender will want to make sure you aren’t without any money left over to pay your bills on the new house. It’s a safe bet to go ahead and prepare for at least two months' expenses to be saved back. That means after insurance, taxes, interest, and other expenses are taken care of, you will still have a healthy amount left. Plan on saving back double the amount you will need to take care of those expenses.