I had a buyer come into my office the other day and we talked about finding her a detached single family home in the $350,000 range.  The buyer knew that she could not live close to downtown (Bethesda, MD) since current home prices are well above her limit. 

As we talked, I learned that she had been pre-qualified by her lender.  She also told me that she had saved 3% for her down payment and another 4% for her closing costs.  Based on her income she was aware that she could qualify under the FHA program for her loan. She had clearly done her homework. 

I learned that she was a single mom with a small child.  She told me that she planned to use all her savings for the home purchase and that she would have just a few thousand dollars left in her savings.  This situation is not unusual.  Most buyers I meet have just enough funds to qualify for their loan and meet lender guidelines.  However, this is not always a good approach to making your home purchase.  It is important for buyers to think about their reserves.  This is a very important concept.  This is not only money for the next couple of monthly mortgage payments, but money for auto repairs, unexpected dental bills, home repairs, shoes for the kids, an unexpected trip, and other “surprises” that can throw a personal budget for a loop.  Most financial magazines I have read encourage homeowners to keep six months of ordinary expenses in reserve.  This is not very easy for the average American.  We are not particularly good savers.  However, it is a standard that buyers should strive to obtain. 

It is important to remember that our best plans often do not work out exactly as we thought they would.  So, it is usually better to be conservative and prepared for financial problems in the future. If you have any questions about your reserves or home purchase plans contact me at your convenience.

Share This