How much cash do you keep after closing on house number one?

Question

I have 52k saved and I'm looking at houses in the 130 to 160 range where 20 to 25 percent down plus closing plus a light turn puts me somewhere between 40 and 48k in. Which means depending on the house I close with either 12k left or 4k left.

The case for buying the more expensive house and closing thin: the better house is in a stronger part of town, the tenant pool is easier, and I stop losing months. Every month I wait, prices in my market have been drifting up and my savings rate is 900 a month, so I'm not catching up. Somebody in another thread here made the point that the first deal teaches you more than the fourth month of research does.

The case for the cheaper house and a bigger cash cushion: the failure mode for a first-timer isn't buying an average house, it's a 7k repair in month three with nothing in the account, then a credit card at 24 percent, then selling into a bad month. A furnace and a vacancy in the same quarter on one house is not an unusual year.

What I can't figure out is what the reserve number should actually be. Six months of expenses is the number I keep seeing, and on one house that's maybe 7k, which feels either about right or arbitrary depending on the day. Curious where the room actually lands.

raj_mehta14 · Answer

The thing I'd want to know before voting is whether your 52k is all the money you have or all the money you set aside for this. Those are very different situations and the reserve answer changes completely. If you have a separate emergency fund for your own life, closing at 4k left is a different risk than closing at 4k left with a car that might need a transmission.

wendy_park48 · Answer

Read your insurance policy before you set the reserve number, not after. Two things in there set your real floor. The wind or hail deductible on a lot of policies is a percentage of the dwelling coverage rather than a flat dollar figure, so on a 150k house that can be 1.5 to 3k out of pocket before the carrier pays anything on a roof claim. And check whether there's an exclusion or a lower sublimit for water damage from plumbing, because that's the claim you're most likely to have. Add the wind deductible plus one full turn plus one HVAC replacement in your market, and whatever that sums to is the number. For me on a 140k house it came out around 11k, which is well past six months of expenses. That's also the number that told me to buy the cheaper house.

How much cash do you keep after closing on house number one?

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