Why you need six months of reserves on top of your down payment
Reserves are the difference between a setback and a crisis. Plan for six months of your budget, after closing.
The rule
Hold six months of your total monthly budget in cash after you pay your down payment and closing costs. This applies to a home you live in and to an investment property.
Why six months
Job changes, a vacancy, a roof, a water heater, a medical bill — these arrive without notice. Lenders may only require a few months of payments; your household needs more.
An example
Monthly budget of $6,000 × 6 = $36,000 in reserves. On a $400,000 home with 5% down, you would need $20,000 down, about $12,000 in closing costs, and $36,000 in reserves — about $68,000 in total.
Run your own numbers
See your payment, take-home DTI, cash to close and six-month reserves.