How Much Cash Should You Really Keep After Buying a Home?

Homebuyers spend a lot of time thinking about how much money they need to close.

Not enough time is spent asking:

How much money should I still have the day after closing?

Those aren't the same question.

Bigger down payment doesn't automatically mean better

Suppose you have $60,000 available for a home purchase.

Putting nearly all of it toward the down payment might lower your mortgage.

But it may also leave you house-rich and cash-poor.

Then the water heater fails.

The moving company arrives.

You realize you need a refrigerator.

Your car needs repairs.

Suddenly the mathematically "responsible" decision doesn't feel very responsible.

Cash has value

Liquidity gives you options.

Once cash is converted into home equity, accessing it again may require selling, refinancing, opening another financing product or otherwise meeting additional qualification requirements.

That doesn't mean you should minimize your down payment.

It means you should intentionally decide how much cash belongs in the house and how much should remain available.

Plan beyond closing

I like thinking about cash in several buckets.

• Closing funds — Down payment, allowable closing costs and prepaid expenses.
• Emergency reserves — Money you aren't planning to spend.
• Immediate home expenses — Moving, furniture, appliances, repairs and projects you already know about.
• Life reserves — Money for everything unrelated to the house.

Because your mortgage isn't your only financial obligation.

What is the right reserve amount?

There isn't one universal number.

Someone with highly stable salaried income may feel comfortable with a different reserve than a self-employed buyer whose monthly income fluctuates.

A first-time homeowner purchasing an older property may want more reserves than someone buying a newer condominium with many exterior expenses handled by an association.

The appropriate amount is personal.

Don't drain the account just to avoid mortgage insurance

One common example is pushing the down payment to 20% solely to avoid PMI.

Sometimes that is absolutely the best decision.

Other times, a buyer could potentially put less down, pay mortgage insurance, and retain significantly more cash.

The correct comparison is:

What does preserving that cash cost me?

If keeping $25,000 in reserves costs an additional $90 per month, for example, you can make an informed decision about whether that liquidity is worth the expense.

That's a very different conversation from simply saying:

"PMI is bad."

A successful closing should leave you financially stable

Getting the keys isn't the finish line.

It's the beginning of owning the house.

My preference is to structure financing so the mortgage works not only on closing day, but also in the months and years afterward.

Sometimes that means putting more money down.

Sometimes it means deliberately keeping more money in the bank.

The numbers should serve your life—not the other way around.

— Nathan Williams