How much money is in your housing reserve?

Sure, you have enough money for a down payment, but are you prepared for the unexpected?

If you lost your job tomorrow, do you know how you’d cover the mortgage payments? If your car broke down, would you be able to purchase a replacement vehicle without busting your budget? Unfortunately, for many Canadian women, the answer is no. This is because not enough women have emergency funds – a rainy day stash of money that is only accessed during times of high financial stress.

Why you need an emergency fund

Emergency funds are vital, especially if you’re planning to take on the responsibility of owning your own home. A solid emergency fund creates a financial cushion during emergencies and allows you to avoid relying on credit cards during a tight pinch. So, how big should your emergency fund be?

If you’re considering purchasing a home, this savings account should act as a suitable housing reserve. Here are some important things to consider when creating your savings plan...

• Start with your expenses

  At the very least, make sure your emergency fund covers six to nine months worth of expenses. This should include your mortgage payment, utilities, food, and transportation – whatever falls into the “regular expense” category. If you’re a single woman, up the ante to a year’s worth of expenses. This way, if you’re suddenly without an income, you’ll be able to stay afloat long enough to either find a new source of income or sell off your property.

• Review your family structure

  If you were to become ill or unemployed, could you ask a family member for money? What if things were reversed and you were the one responsible for aiding a family member through tough financial times?

• Are you employable?

  The recession has made it increasingly difficult to find work. In order to prepare yourself for the unthinkable, stop and review your current employment situation. If your company were to suddenly close their doors, would you be able to find work in a similar industry in your city? Or would you have to sell your home and move in order to land on your feet? Each situation would require a very different emergency fund.

• Down payment amount

  In order to score a great mortgage rate, you’ll need to put at least 20% down on your home purchase. But just because you can front that kind of cash, doesn’t mean you’ll automatically qualify for a large mortgage sum. Lenders also look at your housing reserves prior to approving your request. In most cases, you’ll have to be able to prove that you have a minimum of 12 months worth of housing cost reserves in addition to your down payment.

• Other sources of savings

  While you don’t want to let your need for a rainy day fund hinder your retirement savings, RRSPs and other savings sources could come in handy during an emergency. If you have a well-rounded retirement portfolio, you can probably keep a little less on hand in terms of cold hard cash.

• Income potential

  Roommates aren’t just for college students. If you’re in a pinch and have an extra room, a boarder could provide enough income to help you cover the rent during a crunch.

Prepare for the unexpected

Are you prepared for a financial emergency? Consult a mortgage broker for more information on housing reserves and the costs of owning a home.

You want to start saving for emergencies and those unexpected expenses now...before it’s too late.