One of the biggest items that you save for during your life is the down payment to purchase your house. If you find yourself in the situation where you have saved up enough for a down payment, but aren’t ready to purchase a house you have to figure out what to do with your money while you wait.
How you handle your down payment during this time can actually have a big impact on your ability to use the funds once it is time to buy a house. Avoid making these 5 mistakes while you are waiting to purchase your house.
You might think it doesn’t matter keep your money while you are in the process of saving up for a down payment, but you couldn’t be more wrong. If you stuff your cash into a safe or the freezer at your house not only are you risking having it taken if someone breaks in, but you are losing out in other ways as well.
Keeping your money in an interest bearing account allows you to make interest on the money as it sits there. By not doing this you are losing out on free money.
Another problem with storing your money at home is that lenders need to see the money in your bank account. There are many rules that have to be followed with a down payment. For lenders to believe that the funds are yours and you have earned them over time you need to be making deposits that reflect on your bank statement.
As mentioned above you don’t want to make last minute large deposits into your bank account. When lenders see this they will assume that you have gotten a loan that you will need to repay.
Most lenders will ask for two months of bank statements. If you are receiving gifted funds for your down payment try to have it deposited into your account more than 60 days before you are looking to obtain a mortgage.
When you have a large chunk of money sitting there it can be easy to start thinking that you could invest the funds to get a high return. However, this is a horrible idea.
Putting your down payment into risky investments is just as likely to cause you to lose your potential house as it is to earn you a high return. Instead, consider keeping your money in a certificate of deposit or money market account where you can earn a little interest without risking losing any of your initial deposit.
If you are keeping your down payment in your parent’s bank account so you don’t have access to it, you are making a big mistake. Lenders want to see that the applicant is the one who has been working to come up with the down payment for their loan. You risk being denied for a loan if you keep your funds in another’s account.
You want to make the loan process as easy as possible to increase your chance of being approved. To do this you need to keep all your down payment funds in the same account. If you wait until the last minute to pull them altogether from multiple accounts you can run into problems when the lender is trying to verify where the funds came from.
Saving up for a down payment is hard enough. Making any of these five mistakes makes your process of using the funds for a down payment even harder. The last thing you want after months or years of saving up is to run into problems because of the way you handled the funds.