Don’t Even Think About Buying a Home Right Now Unless You’ve Done This First

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Mortgage rates are high and you don’t want to risk not being able to make your payments. Here’s why you need an emergency fund to become a homeowner. 

Buying a house can be a great thing. You get to have a place to call your own, which is a pretty amazing feeling. You get to decorate the way you want and set down roots. And, as you make each monthly mortgage payment, you get closer and closer to owning a valuable asset outright, so you can grow your own net worth.

That being said, you do not want to just buy a home without really thinking through the huge decision you’re making. You’re going to be making a major commitment, because selling a home can be expensive and difficult. And you’re going to be agreeing to pay back a mortgage lender for decades, which can impact every aspect of your financial life.

Before you jump into the home-buying process, there is one step you absolutely must take first to make sure you don’t end up with major regrets. Here’s what it is.

Do this before you buy a home

Before you even consider purchasing a home — especially in this current economic market — the one big thing you need to do first is to save up an emergency fund. Specifically, you’re going to want an emergency fund that has enough money in it to cover around three to six months of living expenses, including the mortgage payment you’ll be taking on.

This probably sounds like a really difficult — and perhaps annoying — task to accomplish. After all, you’re already working hard to save up for a down payment, and now you’re being told you need to save even more money. Not what you want to hear.

But, there’s a really, really good reason why you need an emergency fund. Having one could save your home in case of a crisis, and could make it possible for you to maintain your house in the way you need to.

Here’s why an emergency fund is so important

There are two big reasons why it is critical you have an emergency fund before you become a homeowner.

First and foremost, buying your house means committing to a mortgage payment. And, mortgages are expensive right now. As of Dec. 14, 2023, the average 30-year mortgage rate in the U.S. hit 6.95%, according to Freddie Mac.

That’s actually lower than rates have been for months, but it’s still high based on recent standards. Just a few years ago, rates were around the 3% to 4% range and a rate near 7% means your home loan isn’t going to come cheap. In fact, if you bought a $431,000 home (the median price in the third quarter of 2023), and you borrow $344,800 to do it (assuming a 20% down payment) you’d be looking at a $2,282.40 per month payment for principal and interest. You’d also have to pay for property taxes, home insurance, and possibly homeowners association fees on top of that.

Even if you lose your job or your income declines and you don’t have an emergency fund, you still have to keep making that payment. While you might have more options if you rent — like breaking your lease if you have to — stopping your mortgage payments could lead to foreclosure. This would destroy your credit and could mean losing the equity in your home. And selling takes time, so you probably wouldn’t be able to do it fast enough to avoid a missed payment.

Even if you don’t need your emergency fund to save your house, you may end up needing it when you have an unexpected repair crop up. If your air conditioner goes out in the heat of summer or your heater breaks on the coldest day of the winter, you’re going to want that emergency money to cover it if you don’t have a home repair fund.

The bottom line is, it’s annoying to have to wait to buy a house until you’ve saved up an emergency fund but it’s a lot less annoying than losing your home or dealing with a leaky roof for months because you can’t afford to get it fixed.

So, if you dream of becoming a homeowner, get that high-yield savings account open today and start working on saving up your emergency fund so you can really get into the best financial position to own a home.

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