Parents Helping With Added Cash “Reserves”
Another factor that affects younger home-buyers trying to buy a home is “reserves.” Many first-time home-buyers aren't even aware that they'll need to have additional funds in their account beyond the down payment, to close on their home.
Mortgage lenders want to be sure that you can afford to still repay your mortgage, even in the event that something unexpected happens to you such as losing your job, or an unexpected emergency. The amount of cash reserves will vary depending on the mortgage and the size of your loan amount, but expect to need 2-6 months of “Reserves.”
Example: Suppose your total monthly mortgage payment with taxes and homeowners' insurance is $3,000 a month. If you have $18,000 in savings after closing on the house, you’d have six months of reserves. ($18,000 divided by $3,000 equals six months.)
While we're not suggesting that you do anything untoward, if a parent adds their adult child to a savings account or a checking account for over 1-year, that could take your application over the threshold from “Deny” to “Approve”. There are also many legitimate reasons that a parent would want to have an adult child added as a co-signer on the account; if that parent is elderly, they may need help paying bills monthly in a timely fashion. Or, if the parent is living abroad and still maintains a US domestic account, he/she may add an adult child to help with any issues that come up.
Mortgage lenders generally want to see 2-3 months of prior bank history when verifying income and assets, though some of the online mortgage lenders can go back as far as 2 years, so the earlier the better.
When it comes time for verifying those assets as your own to qualify for the mortgage, your parent(s) will likely have to write a letter stating that you (their child) has access to and ownership of the funds as you've agreed upon.
Getting a mortgage is easier than ever with today's online mortgage process making it possible to apply with a full application in under 20 minutes. See Stem Lending's website for proof of this.
However, qualifying for a mortgage with a 20% down payment or the right amount of cash on hand is often harder than ever for home-buyers who are saddled with student loan debt. Leveraging their parents for help with either the down-payment or cash reserves is a smart option, if you're lucky enough to have it to use! Call us if you have any questions, 833-600-0490, or email us at [email protected]