If You Need a Mortgage, You Also Need Cash. Lots of It!
Even though you’re borrowing to buy a home, cash is King. And there remains a great deal of confusion regarding how much cash you need at what stage of the mortgage and final purchase. The main thing to know is that there are 'three piles of cash' required:
Deposit: this is the good faith money that you'll offer to the seller when you submit an offer with your real estate agent. Your deposit is held in trust at the listing office and goes toward the down payment.
Down payment: this is the percentage of purchase price that the lender requires as a condition of the mortgage loan. For example, if you're putting '5% down,' mortgage insurance will be required. If you're putting 20% down, you're considered a conventional borrower and the mortgage may or may not be subject to insurance.
Cash to close: this is literally the cash on hand required for closing costs such as legal fees and other incidentals that arise when completing a home purchase. A good rule of thumb is to budget for 1-3% of purchase price.
Watch my video below to learn more about how to prepare your pennies before the big day!