How to Put Cash Down on a House

Video Transcript

"Now the fourth main area that the banks are going to look at when they are evaluating your worthiness to get a loan is cash. Now when they are looking at cash, they are looking at two main things. The first thing they are looking at is if you are buying the house, how much down payment you have. Okay and the reason for that is if I am borrowing money for a house and I am borrowing a 100 percent of what that house is worth, I'm not at risk for very much. We'll take the $100,000 house example. If I am buying a house for $100,000 and I get a loan for $100,000, I haven't invested much. If something goes wrong and something starts happening in my situation, it is moire likely that I will be unhappy about it but I will walk away from nothing that I put in. Where if I've put 20 percent down or in this case I've put $20,000 of my own money into this house and things start getting tough, there is a greater chance I am going to do what it takes to make this work and to get the bank paid back. So they feel there is less risk to them if I put money down. The other big thing they are going to look at is reserves. With reserves they are looking at how much cash I have on hand. So if my situation does change, say I lose my job or god forbid I get hurt or something like that, they want to know how long can I still make my payments to them until I get back on my feet. With reserves they are looking at something called PITI which is principal, interest, taxes and insurance. So they take my total payment what that is going to be and they like to see generally 4 to 6 months of that payment amount in reserves. Okay does that make sense? Yes. Okay the fourth main point they are going to look at or evaluate on is your cash in the form of down payment and reserves. The important acronym there is PITI which is principal, interest, taxes and insurance. "