Buying a home is exciting—but if you’re still shopping, it’s also one of the biggest financial transitions you’ll ever make. Lenders look not only at your income and credit, but also whether you can handle life’s curveballs without jeopardizing your future mortgage payments. That’s where an emergency fund comes in. Even before you buy, having cash set aside makes you a stronger applicant, gives you more confidence in your budget, and protects you once you’re in your new home.
And just like setting aside savings matters, it’s always smart to compare lenders before committing—because a lower mortgage rate frees up money you can keep building into that safety net.
Why an Emergency Fund Matters for Buyers
- 46% of U.S. adults lack enough savings to cover even 3 months of expenses (Bankrate, 2025).
- 24% have no emergency savings at all
- 59% would struggle to cover a $1,000 emergency (CBS News).
- Just $2,000 can boost financial well-being by 21%—and reaching 3–6 months adds another 13% (Vanguard).
If you’re hoping to buy, building even a small cushion shows lenders (and yourself) that you’re financially ready to take on the responsibility of a mortgage.
What Are Cash Reserves
Cash reserves are the savings you’ll have left over after closing on your home. Lenders measure them in months of mortgage payments (principal, interest, taxes, insurance, and HOA dues if applicable). For example, if your total monthly payment will be $2,000, and your lender requires two months of reserves, you’ll need $4,000 in liquid savings on top of your down payment and closing costs.
Why lenders care: reserves prove you can still cover your mortgage if something unexpected happens—like a job change, medical bill, or income gap. They reduce the lender’s risk and improve your odds of approval.
How this differs from an emergency fund:
- An emergency fund is your personal safety net for any surprise expense—car repairs, medical bills, or rent increases.
- Cash reserves are what lenders specifically look for during mortgage approval.
The two can overlap, but separating them is smart: one satisfies your lender, the other protects your household once you’re a homeowner.
How Much Do Lenders Usually Require in Cash Reserves
Cash reserves are measured in months of your full monthly payment—including principal, interest, taxes, insurance, and HOA fees, if applicable. The amount required varies by loan type and underwriting protocol:
- Conventional, primary residence: Often none for automated underwriting, but manual underwriting or higher-risk profiles may require 2–6 months of reserves—including 2 months for second homes and 6 months for two- to four-unit primary residences or investment properties. (Fannie Mae)
- FHA loans: Typically none required for one- or two-unit properties, but 3 months of reserves may be needed for three- to four-unit properties or manual underwriting. (Mortgage Research Network)
- VA loans: Generally no reserves required, though lenders may ask for approx. 3–6 months when rental or multi-unit income is used. (Bankrate)
- USDA loans: Typically no reserves are required.(Bankrate)
- Jumbo loans and complex scenarios: Reserves often range from 6 to 12 months, or even up to 12–24 months for self-employed or higher-risk borrowers. (Fannie Mae)
How to estimate yours
Multiply your projected monthly payment by the reserve requirement.
Example: If your anticipated mortgage payment is $2,100, and the lender requires 3 months, you’ll need $6,300 in reserves above your down payment and closing costs.
What Counts Toward Reserves
- Balances in checking, savings, and money market accounts
- Liquid investments like stocks, bonds, or 60% of retirement accounts (subject to lender discretion)
- Not counted: unsecured loans, credit card balances, gift funds in most cases.
Pro Tip
Keep your reserves in a separate account from your down payment and everyday spending. It simplifies underwriting and protects your money from being redirected.