Qualifying for a Home Purchase: Cash on Hand

When you're in the market to buy a home you will need decent credit, verifiable income, and cash on hand. With this series of writings, I will discuss each in more detail. The most urgent of these is cash on hand, so we'll begin there.

How much cash do I need?

In my market, 1960/Cypress Creek South in Houston, as of March 11, 2022, the median price of a single-family home is 259k. To buy the median home in this area, the average person will need about 18k cash on hand. (Of course, you can do better than average and pay much less.)

Should I save money or pay off my debt?

Dollar for dollar, cash on hand is more valuable than future income or available credit. Do you want proof? Try paying your mortgage today with a credit card. You can't do it. Neither can you pay it with the promise of future income. Your mortgage is paid only in cash, usually from your checking or savings account. The same is true of paying credit cards or other loans.

When you realize the value of cash on hand, you'll make financial decisions in the present that'll have a positive impact on your credit and housing in the future. So put first things first. Make sure you always have cash on hand for future opportunities. The major way you do this is by paying yourself first.

Pay yourself first.

Paying yourself first means that whenever you receive income, you put a predetermined amount such as 10%, or whatever is in your heart, into a savings account, and then don't touch it except to grow your assets. Don't use it to pay liabilities. Don't use it for food, entertainment, or other expenses. Allow it to grow your wealth every time you are paid.

If you find that there's not enough money left over to pay your bills after having paid yourself first, it means it's time for you to cut your expenses. Take a look at your bank statements and identify where you can cut unnecessary costs. Sometimes it's dining out, entertainment, or subscriptions you've neglected to cancel. Do what you need to do so that every month your expenses are paid by 90% or less of the income you've generated.

The bottom line:

Have a separate savings account that grows every time you are paid and don't touch it except for profitable investment opportunities. Use your cash to generate more cash, then when it's time to upgrade your housing, the money is there.