Buying a Home? Here’s Why It’s Important to Have a Large Savings Account Balance

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It takes money to buy a home — but not just for the reason you think. Read on to learn more. 

One of the things that tends to motivate people to boost their savings account balance is wanting to own a home. To buy one, you’ll generally need to come up with some sort of down payment (though some mortgage programs, like VA loans, allow you to buy a home with no down payment). And the higher the price of the type of home you want, the more savings you need on hand.

But that’s not the only reason it’s important to have a nice amount of cash reserves when you’re buying a home. Believe it or not, the state of your bank account could have an impact on whether you end up qualifying for a mortgage loan or not.

When your mortgage lender needs reassurance

Mortgage lenders are in the business of writing large loans that get paid off over lengthy periods. And so they take on a fair amount of risk.

That’s why these lenders tend to do a thorough job of vetting home loan applicants. When you apply for a mortgage, you’ll have your credit score checked, your income scrutinized, and your current level of debt relative to your income assessed.

One thing that your mortgage lender might look at is the amount of cash reserves you have beyond what you’re bringing to the table as a down payment on your home. The reason? If you leave yourself with very little cash in the bank after putting money down at your closing, you may be more likely to miss future mortgage payments in the event of a lost job or another negative financial situation.

That’s why it’s really important to have a larger savings account balance when you’re buying a home. Having extra cash in the bank could actually help you qualify for a mortgage.

You also need money for home repairs

In 2022, the average home-related emergency cost $1,953, according to Angi. But if something major goes wrong with your home after you buy it, you might end up needing a lot more money than that to tackle the situation.

That’s another reason to boost your savings before buying a home. You want to leave yourself with cash reserves to tap in the event of an unplanned repair bill. And let’s be clear — it’s often the case that home repairs aren’t things you can plan for calmly and methodically, but rather, things that pop up at the least convenient times, like your heating system going kaput in the middle of winter.

The more money you have in savings, the more confident you can be going into homeownership and the mortgage application process. So do your best to boost your cash reserves if you know that homeownership is on your radar.

Even small changes like cutting back on leisure spending here and there or ordering takeout one fewer time per week could add up. And if you don’t want to cut your spending, you can always turn to the gig economy to drum up extra cash.

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