How to Get Your Funds Ready to Buy a House in San Jose
If you’re ready to buy a house in San Jose, you’ll need to make sure your funds are available. Having funds available goes deeper than determining a budget and getting a mortgage pre-approval. We’re talking about making sure you have the cash on hand when it comes time.
If your funds are locked away or hard to access, it will be difficult to complete your real estate transaction on the expected timeline. Here’s some information about how to get your funds ready to buy a house in San Jose.
Understand how much cash you’ll need
Start with an understanding of how much cash you’ll need to make the transaction happen. You’ll have your earnest money deposit (EMD), down payment, and closing costs. These amounts can all be projected based on your budget and expected sale price.
We have a number of videos and resources on how much it costs to buy a home in San Jose, so it’s a good idea to get a basic understanding. Once you do, you’ll be able to create an in-depth projection for your particular scenario. Read Buying a House in San Jose: Calculating the Costs to help you figure out what you can afford or watch the video below:
Understanding the timing of EMD vs. down payment
There are two major sums - the EMD and the down payment. The EMD is due immediately after the contract is signed, while the rest of the down payment is due when you close. The timeline can be hard to remember but it is essential you have cash on hand at the right time.
EMD - EMD is typically due 24 hours after a contract is accepted. This means you need this money on hand in a bank account that can wire funds immediately. Liquidating stock to pay EMD is out of the question as the process takes too long.
Remaining down payment (full cash to close) - The full cash to close is due two days before closing day, but should be wired three days before to make sure it arrives with time to spare. If you are liquidating stock to pay, then this needs to happen at least seven days before close.
Lots of buyers in Silicon Valley cover down payments with money that’s in the stock market. It’s up to you on when you sell your stock, but many buyers choose to sell it on a good day in the market and set it aside for the home buying process. The risk with this strategy is that it may take a long time to find the property you like, time in which stock value would’ve appreciated.
Depending on how the stocks are doing, other buyers leave it in the market as long as possible and sell immediately once an offer is accepted. The risk with this strategy is that stock value can depreciate, and you may be stuck selling on a bad day in the market.
When it comes to liquidating stock, you need to start that 3-5 business days BEFORE the wire is to be sent out. You cannot rely on liquidating stock for EMD as there is not nearly enough time for this. For the final cash to close, you need to start the liquidating process at least seven business days BEFORE closing day.
If you wait until the offer is accepted to sell the stocks, you need to make sure you have cash for your EMD (typically 3%) available since those funds are due immediately.
Insider tip: Don’t forget to account for taxes when you sell your stocks! You need to calculate and set aside substantial funds for capital gains taxes.
Make sure your money is in the right accounts
Is your money truly accessible? How long will it take to wire out? You might think that having your money in an online savings account is a safe bet, but many only do ACH transfers which take a full three days.
We worked with a client recently who made this mistake. We’d discussed having their funds ready to wire for the one day earnest money deposit timeframe and they believed they were ready, but their funds were in an online savings account, which come to find out actually only does an ACH transfer. That meant they were not able to get the EMD in one day– it actually took a full three days because one day for ACH transfer to their bank and a 24 hour hold for bank before they could then wire the funds to escrow.
Be aware that not meeting the contract deadline could mean you loose the house so set yourself up for success!
Triple-check your strategy
Our clients in the above example thought their money was ready to go, only to find out that their online savings account couldn’t perform as expected.
Most “online” banks or accounts have limited options for moving funds. Many online banks only do ACH transfers to a regular bank account which can add a significant delay into funds transfers. Buyers must confirm that funds can be wired within one business day ahead of time.
Your goal is to make sure the 3% earnest money is liquid and able to be wired in one day. Triple-check your accounts to make sure that this will be do-able.
Getting your funds in order before making a purchase
Buying a home in San Jose is an exciting prospect. Once you find a house you love, you want to be able to act fast, which means that your funds should be ready to go. Having liquid funds at your fingertips allows for more flexibility and helps ensure that the real estate transaction will move forward seamlessly and on schedule.
Other questions about buying a home in San Jose? Read our step-by-step guide to buying a house. Ready to set up your team? Schedule your home buyer consult today so we can talk more about your home-buying goals and personal situation.