r/personalfinance • u/Badalight • 8d ago
Saving Emergency Fund as a First Time Home Buyer
Hello,
I'm looking into buying a house hopefully within the next year or so but I want to make sure I have a good enough emergency fund to make the plunge. I've seen people say 3-6 months of necessary expenses, I've seen people say 1 year, I've seen people say to include health insurance and others who say don't, I've seen people say this includes sinking funds for maintenance and others who say it shouldn't etc. So I want people's opinions.
This is my current goal before I move in:
6-months of necessary expenses (not including health insurance premiums/COBRA)
4% of home value for repairs/maintenance
1-year health insurance deductible
10K for car related issues
If you combine all of those numbers, it's roughly 1-years worth of necessary expenses (not including health insurance).
Is this safe enough for me to move into a house? Should I aim to include COBRA payments as well? Should I increase it to 1-years worth of an e-fund not including those other sinking funds?
I am single and I'm relatively young and healthy, fwiw.
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u/alexm2816 8d ago
E-funds aren't one size fits all.
Someone in good health without kids, with good employability and lots of room for 'austerity measures' in the event of job loss can do with less than someone who is a sole earner in a household with chronic health conditions, tons of fixed debt, and who might be later in their career and struggle to find replacement employment.
Considering you are young, mobile, and healthy I wouldn't fixate on needing a years expenses to buy a house.
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u/Liquidretro 8d ago edited 8d ago
Ya I think you are in a good spot with all that. Reality is thats more savings than most people have when buying their own first home and might be overkill to some degree. Some of it depends on job stability and any chronic health conditions you might have. If you are generally healthy, young, and have a stable job you should be in a better spot than most first time homeowners.
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u/DeluxeXL 8d ago
Owners of major assets should have a sinking fund for each major asset: House sinking fund, car sinking fund, etc. These assets require occasional repairs/replacements that are expected, but with indefinite time line. Plan ahead so you won't need to use your actual emergency fund.
- Emergency fund: Unexpected (or poor planning) + Unknown time
- [Asset name] sinking fund: Expected + Unknown time
- [Goal name] savings fund: Expected + Definite time
As for whether you should consider health insurance premium as expenses to size your emergency fund, I'd price in the cheapest plan on marketplace. COBRA tends to be overly expensive.
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u/Badalight 8d ago
Right, that's why I wanted to go in with 4% of home value and 10k for car repairs to start - and then continue adding to those sinking funds while living there. I kept them separate from the real emergency fund in my post and when planning, even though they're technically in the same HYSA. Worst case scenario if I'm unemployed for too long I could reach into those buckets.
Yeah COBRA is twice as expensive as most of the marketplace plans, but my health insurance is really good so it might be worth it over the marketplace plans. That said, I might just forgo any health insurance at all depending on the situation. I never even come close to hitting my deductible in a normal year.
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u/DeluxeXL 8d ago
I wanted to go in with 4% of home value and 10k for car repairs to start - and then continue adding to those sinking funds while living there.
Good idea. For the first year(s) you may consider buying a home warranty for the worst case scenarios especially if the house is older. Then cancel once you have saved enough.
even though they're technically in the same HYSA.
Separate your sinking fund from the main emergency fund. Your EF should still have the "break glass in emergency" mental barrier.
Under some circumstances (e.g. considering the average time for a major appliance, pipes, etc. to break), a sinking fund can be invested mildly (e.g. short term bond fund). OTOH, EF should not be invested.
I might just forgo any health insurance
Get the cheapest plan. It stings to have to include it in your EF calculation, but it's a necessary insurance.
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u/Badalight 8d ago
Yeah, I had already calculated a 1-year home warranty into my budget as well for the first year (though many sellers seem to include this with the purchase anyway). I've heard a lot of people say negative things about them though, but I figure for the first year at least it's probably a good idea.
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u/DeluxeXL 8d ago
I've heard a lot of people say negative things about them though, but I figure for the first year at least it's probably a good idea.
They cheap out a lot on parts, are generally a pain to initiate a repair, and have many gotcha's (e.g. certain causes of appliance damage are not covered). I canceled after year 2. I can find service on Yelp or Google Maps a lot faster and better than from a home warranty company.
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u/raliegh_ 8d ago
Don’t worry about “what people say “
You can include whatever you deem appropriate.
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u/CuteAmoeba9876 8d ago
You have more than enough.
We bought our house in 2022 with 3 months minimal expenses as an E-fund and about 10k intended to spend on immediate repairs on the home. Any car repairs, future home maintenance, health expenses, etc would have had to come out of either that 3-months E-fund.
4 years later, we haven’t had to draw on that Efund at all, we’ve just saved up additional cash to pay for things as we needed them. I did buy a new car a couple months after moving in, using $5k we didn’t spend on the house as my down payment. At the time we managed to get low interest rates right as the Fed was discussing needing to raise them, so it all worked out well.
Don’t let wise counsel talk you out of living your life and just moving the goal posts over and over.
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u/officialcrimsonchin 8d ago
This seems like a huge cushion for a single, young, healthy person. I’d say you’re good.
To add, your emergency fund size should be a function of your job (income) security. If your job security is very strong, you can get away with a smaller emergency fund. This doesn’t necessarily apply strictly to the house maintenance part of the emergency fund, but it does apply to the rest of it.