Question: How bad is it to buy a house with little savings?

There are two aspects to this question. How does the loan side work?  How does the life side work?

From a lending standpoint, you typically on need two months reserves after the purchase. You can buy a home for as little as nothing down if you are a veteran, or 3% - 5% for a conventional loan. We offer a 2% down payment assistance for FHA loans reducing the total down payment to 1.50%. You’ll just have to be able to document the source of the down payment and closing costs. So you could use up every penny of your available cash with your purchase, and as far as the lender is concerned, you’d be okay.

The second aspect of the question: it’s a TERRIBLE idea not to have at least an emergency fund to deal with unexpected events. This doesn’t have to be gazillions of dollars, but certainly enough to deal with things like surprise house or car repairs that have to be addressed. Many, if not most people don’t have any significant savings, so they rely on credit cards to deal with these things. This often leads to real financial problems later on. Should you buy a home with no money left over after your purchase? I won’t say it’s a terrible idea, but if you do, make a personal resolution to set aside some percentage of your income each month for that emergency fund. That’s your sleep-good-at-night money.

If you set aside, say, 10% of each paycheck as a reasonable savings target.  That you won’t miss the money, and your emergency fund will grow faster than you think.

 

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