Just because you've saved enough for a down payment doesn't mean you're ready to buy a home. Homeownership means paying for more than just the mortgage. You're on the hook for everything, from minor mishaps to major repairs. Before you commit to becoming a homeowner, you need an emergency fund. It's a financial safety net that is essential for keeping your dream home from becoming a financial nightmare.
What's the Magic Number?
Financial expert and host of the Afford Anything podcast, Paula Pant, recommends having around three to six months of expenses set aside in an emergency fund. “When you buy a home, your living expenses are likely going to go up,” she said. “As a homeowner, you are now responsible for repairs, maintenance, and major capital expenditures.”
It might seem like a lot, but homeowners spent an average of nearly $6,000 on repairs and maintenance in 2022 alone. And if you're buying an older home, one with more square footage, or a property that's been neglected, you’ll likely need even more padding in your savings.
Common Homeownership Emergencies
Every homeowner likely has a horror story about a repair bill. Even if you do all you can to maintain your home, these costs are inevitable. However, the right planning can make paying for repairs far less painful. “People will often look at expenses that are predictable but irregular, and they will erroneously count those as emergencies,” Pant said. “It just feels like an emergency because you don't know when it's going to happen, and you don't know how much it's going to cost.”
Here are a few common repair scenarios where some planning can help you avoid financial stress:
Roof Repairs
Roofs have a habit of failing at the worst times. A single storm can expose roof issues you didn’t even know existed. Minor fixes might only cost a few hundred dollars, but a full replacement can quickly escalate into thousands. Preparing ahead ensures your home stays cozy and dry without devastating your finances. “The average roof is going to last around 25 years, and typically a lot of times in a home sale, you'll know when the roof was most recently replaced,” Pant said.
Appliance Failures
That stainless steel refrigerator or brand-new washing machine won’t last forever. Repairs can be expensive, and appliances typically fail right after their warranties expire. Replacing major appliances usually costs from several hundred to a few thousand dollars.
Plumbing Problems
Plumbing issues can go from mildly irritating to catastrophic in minutes. Ignored leaks can lead to burst pipes, flooding your home, and your budget, with expensive repairs. Typical plumbing emergencies cost between $100 and $500, but severe damage can skyrocket expenses.
HVAC Issues
Your HVAC system isn't sympathetic to your comfort or your budget. Repairs can start around a few hundred dollars, but replacing an entire HVAC system can cost thousands. Emergency savings mean maintaining comfort won’t leave you scrambling.
Where Should You Keep Your Emergency Fund?
Deciding where to store your emergency fund matters almost as much as the amount itself.
Savings Accounts
Regular savings accounts at banks or credit unions are safe, predictable, and easy to access. While they don't earn much interest, their primary purpose is instant availability during emergencies—exactly what you’ll need if your fridge decides to retire suddenly.
High-Yield Savings Accounts
High-yield savings accounts offer better interest rates while keeping your money accessible. These accounts are FDIC-insured, making them an excellent choice for homeowners looking to grow savings safely while maintaining easy access.
Investments
Investment accounts might offer tempting returns, but they're too unpredictable for emergency funds. Market downturns can force you to sell at a loss right when you urgently need to pay for something costly. Stick to safer options to avoid compounding emergencies with financial setbacks.
Building Your Emergency Fund Step-by-Step
Starting from scratch can seem intimidating, but building a solid emergency fund is doable with some strategic planning:
Set Clear Goals: Calculate what six months of essential expenses looks like for you. Factor in mortgage payments, utilities, groceries, insurance, and other necessities.
Create a Budget: Assess your income and spending. Find unnecessary expenses that you can trim and move those funds directly into savings.
Automate Savings: Treat your emergency fund as an essential monthly bill. Automatic transfers from your paycheck into a dedicated savings account can quickly build your funds. Set it and forget it.
Save Windfalls: Bonuses, tax refunds, or unexpected cash gifts can significantly boost your emergency fund. Instead of splurging, put that extra money aside for peace of mind.
Adjusting Your Emergency Fund Over Time
Your savings goals shouldn’t remain static. Life changes like welcoming a baby, changing jobs, or taking on new debt necessitate reassessing your emergency savings. Regularly evaluate your needs to ensure your financial cushion remains adequate. "Your emergency fund should always reflect your living expenses, and your living expenses are going to change over time," Pant said. "Every year, take a look at your emergency fund and compare it to your actual cost of living and just see how close they come."
Buying a home is thrilling, but unexpected expenses are inevitable. A comfortable emergency fund will help you handle surprises without stress. Aim for six months of living expenses, choose the right savings account, and automate your savings to prepare confidently.
Michael Letendre
Michael Letendre is a writer for NewHomeSource and Builder Magazine.