How much money should you initially have saved for emergencies?

Question

I'm planning to take out an FHA loan soon. I'm saving up for the down payment at the moment. But in addition to the down payment how much should I save up for other expenses such as emergencies that may come up?

Thomas S. · Answer

You should have the equilivant of 6 months of total rental income from the property not just the mortgage costs. There are far more expenses on maintaining a property than simply the mortgage.

Account Closed · Answer

In my opinion, it would be a good idea to have 6 months of PITI (your mortgage payment) set aside in case of emergency for your primary home. Once you start getting investment property mortgages, there will be required reserves that the lender will calculate for you.

Good luck with your first purchase!

Frank S. · Answer

Account Closed

Read the small print.

I've used them for a very long time.  They finally caught up with us using the savings only about a year ago and made changes. It was a very sweet return.   They make money on those that use the card for purchases, don't do that.

They still work for me, but it's a little more complicated.  One has to pull money every couple of months out and ACH $800 into the cards each month, then pull the money - low return 2% for a month, and repeat.

Chase ACH counts as DD.   Run your numbers, they have a $3 monthly fee.

Compare this with discover at 0.95% APY.

Read the small print.

Good luck,

Frank

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Andrew Johnson · Answer

Account Closed I think I'm in line with everyone else here:  6 months of total costs.  Or, barring an accurate projection on that end, 6 months of gross rents assuming 100% occupancy.  Let's hope you're not going cash-flow negative.  That being said, if you know there are pending cap-ex expenses in the next 24 months (roof, HVAC was just repaired and they told you it was fading fast, etc.) add that on top as well.  As with a lot of things, it's not that these are funds that you *intend* to you, these are your "just in case" funds.  If you don't have them, one "just in case" HVAC system can cause renter strife, mortgage lates, credit hurt, and a roof could just bankrupt you.

Roger S. · Answer

My 2 lenders have never stipulated any amount of cash cushion needed to be on hand.

Frank S. · Answer

I do six months cash.  I store them in "Mango Money Savings Cards", Nestspend, and "high" yield savings @ MySavingsDirect and Discover.

Alexander Felice · Answer

6 months of rent sounds about right. It's insurance, you might not NEED any reserves, but if you do need it......as you get more properties you'll learn what amount of funds you'll feel safe having around.

Also for lending, you can use your 401k to cover that for the bank requirement BUT you should not use that 401k as actual reserves to emergency repairs on the property

Richard Diaz · Answer

great info!

How much money should you initially have saved for emergencies?

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