Looking to buy a house? Here’s something you might not have considered: Putting money aside from your regular paycheck could delay your mortgage. It may seem counter-intuitive, but I’ll explain.
The decision to purchase a house is a big one. You need strategic planning, an above average credit rating, a good handle on any debt and a good income. Being able to put aside up to 3.5% of the whole price can make all the difference in some cases. In other situations, you might need to put down as much as 20% of the total price of your dream home.
Unfortunately, certain types of savings are better than others. When you put aside money from your paycheck (a great way to build financial discipline), that money is not necessarily eligible to be used as a down payment. In the mortgage world, it is referred to as ‘income from assets’ (the asset being your paycheck), and this type of income is generally frowned upon.
Let’s imagine your earnings after tax for that month is $6000. That $6000 would need to remain in your bank account for at least 60 days for it to be deemed ‘seasoned’ enough for the down-payment. This is a way for banks to be sure that you aren’t just using your earnings to close the deal, but can save on your own. If you are in the middle of closing a deal on a house, this ‘unseasoned’ money might stall that process. In the event that this is your only option for the down-payment, we suggest you make sure the funds have been in your account for at least 60 days.
Now, while this is in no way the biggest consideration in the whole process of buying a home, it is definitely something that your banker will look into. You don’t want to give them any reason to delay your dreams of being a homeowner. Using your latest paycheck in particular will be a red flag to any bank’s underwriter. It’s like putting your hand between the elevator doors just before they close rather than pressing the button and waiting for it like everyone else.
If your main obstacle to getting a mortgage right now is cash, don’t worry; all is not lost. One option might be to create a new savings plan and wait until you do have enough money saved up. Another is to ask for a contract over a longer term. Your lender will have his own targets, so he/she could help you come up with a plan to get your cash ready.
P.S., Mortgage lenders will be looking for applicants with good credit ratings, so it is in your best interest to find out whether you are one of them. A high credit score can also get you lower monthly payments and better rates.
I recommend you watch the tutorial videos here, and request a FREE 15 minute Home Buying Strategy Session afterwards: Click Here To Watch Tutorials