How Much Money Should Be In Your Emergency Fund

home buying emergency fund

So, you are thinking about buying your first home, but your mom, dad or a friend cautions you that “homeownership can get really expensive” or that “something always breaks when you least expect it.” When you are buying your first home, you are most likely looking for a deal, and with any great deal comes a bit of risk. Whether the appliances are outdated or the roof ends up being on its last winter, it’s true that there will always be surprises with homeownership.

The key is to be prepared, so when that old refrigerator bites the dust, you’ve got plenty of money saved to pay for a new one. Also keep in mind that a lot of disasters are covered by homeowners insurance. This is exactly what insurance is for, so make sure you get a good policy that provides good coverage.

Having a couple thousand dollars saved at time of closing is sufficient, as long as you are consistently saving and adding money to your household expenses fund.

How much money do you actually need saved to cover unexpected household expenses? Some people say you need $10,000 saved for unexpected expenses before you buy a new home, while others recommend having 3 percent of the purchase price saved to cover them. There are some guidelines that can help you find your number (although in reality it comes down to whatever makes you feel comfortable and helps you sleep at night.)

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How old is the house, condo or apartment? The older the place, the more money you need to have saved. It’s just a fact of life: Things wear out. The furnace might not die the week you move it, but it’s going to go eventually. (A simple tip, save $200 for every year the house has been around. If it’s 40 years old, then have at least $8,000 saved).

What could you repair yourself if you needed to? Sure, you can’t build your own new dishwasher, but you could find one for sale on closeout and put it in yourself. It’s insane how much something like a simple sink leak can end up costing you. But thankfully there’s always YouTube, where you can actually learn how to make most minor repairs. Learning how to repair things like toilets, drains and simple wiring will end up saving you a ton of money in the long run. If you are handy, you won’t need to stash as much in your emergency fund to cover household expenses.

What is the weather like in your city? Believe it or not, weather actually has a big impact on your housing expenses, since those big-ticket items (like air conditioners, heaters or furnaces) will often break down in the heat of the battle, meaning when they are working hardest. So, if you live in Phoenix, AZ, or Las Vegas, NV, where it’s insanely hot for a lot of the year, then you should have some money squirreled away for a new A/C. Likewise, If you live in one of the northernmost New England states, have some money saved for a new furnace or heater.

Total up all the items that could break down, things like appliances, the roof or anything that would limit your ability to live comfortably in your new home. Not everything qualifies as an emergency repair (i.e. loose door knob or board). You just need to make sure you have money for those things that you can’t live without — heating for example!

No matter what type, size or age of home you choose, you will realistically need between $2,000 to $10,000 saved to cover unexpected expenses over the first three years of homeownership. But don’t fret, in many cases having a couple thousand dollars saved at time of closing is sufficient, as long as you are consistently saving and adding money to your household expenses fund.