Should You Prioritize an Emergency Fund Over a Mortgage Down Payment?

Savings, close up of male hand stacking golden coins over sky background

Many Arizonans pursue homeownership after pay down some of their debts. Nobody likes to put off this American Dream for a long time, so many of us want to pull the trigger on it the first chance we get.

However, should a mortgage down payment have priority over an emergency fund? Both financial goals are important, but applying for a home loan in Tempe, Phoenix, Scottsdale, Avondale, or Goodyear, frankly speaking, can wait. An emergency fund must be available when you need it.

How Much Is Enough?

The ideal size of your emergency fund is based on your living expenses. It is your savings you should touch when you suddenly lose one or all of your sources of income. It should be big enough to help your family get by for three months to half a year. In other words, only you could truly say how much you need to save up to financially prepare you for emergencies.

An emergency fund is different from a rainy day fund. The latter is meant for smaller unplanned but expected bills.

A great example is car repair. You know your vehicle can break down, but you do not know when. Nevertheless, you should be able to afford to put your car in the shop for a tune-up.

Like an emergency fund, a rainy day fund is designed to keep you from turning to debt when you need money. But unlike an emergency fund, a rainy day fund is intended only for financial hiccups.

How Can You Build an Emergency Fund Fast?

money on jars and emergency money jar

After saving up for a rainy day fund, you should set a timeframe to help motivate you toward building an emergency fund. It makes it easier for you to stay on track and develop discipline.

A good rule of thumb is to avoid relying on your will as much as possible. Take advantage of electronic funds transfers to sock away a portion of your income regularly.

If your budget drains all of your income, get rid of some expenses. It is not impossible to set aside some cash for your emergency fund is you strictly live within your means.

To avoid upending your life too much for the sake of this financial goal, make more money. Use your spare time to get supplement income. You do not necessarily need a second job; recognize what you are good at, and then put your talents to work on the side.

How Does It Help You Qualify for a Mortgage?

Believe or not, not stashing away money to beef up your down payment instead favor of an emergency fund can help you qualify for a mortgage eventually.

You can use your savings to meet your prospective lender’s cash reserve requirement. Usually, you need to present proof that you have at least two monthly mortgage payments’ worth of extra money to avoid getting behind with your bills for a while when you suddenly become unemployed.

Of course, you should not use a portion of your emergency fund to increase your down payment. You should have a different savings account for that. Use other assets, like monetary gifts from acceptable donors, to complement what you have saved.

Building your emergency fund before saving for a mortgage down payment makes homeownership an even longer process. But you will thank yourself later on if you do you take shortcuts in your journey toward being a homeowner.

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