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How do you know this? 30K would hardly get ANYONE through a year of unemployment....sorry, but there is no such thing as having too much liquid money in an emergency....
The standard is somewhere around 3-6 months for an emergency fund. A year would be even better, but that is not considered a minimum.
I have an issue with the entire scenario. This person had no business buying a house in the first place. The parents gave him the money for a house, so perhaps it was expected that's what he'd spend it on.
I'm curious as to how his parents just 'gave him' 200k?
doesn't he have to pay taxes on that? (i have no idea how tax situations like that actually work....so i was just asking)
The standard is somewhere around 3-6 months for an emergency fund. A year would be even better, but that is not considered a minimum.
I have an issue with the entire scenario. This person had no business buying a house in the first place. The parents gave him the money for a house, so perhaps it was expected that's what he'd spend it on.
"Standard" is no longer 3-6 months but 12-18 months---ask anyone that lost a job in 2008-2010....
I'm curious as to how his parents just 'gave him' 200k?
doesn't he have to pay taxes on that? (i have no idea how tax situations like that actually work....so i was just asking)
A friend of a friend wanted to buy a house.. he has no savings or emergency fund.
He wanted to buy a $400,000 house and his parents offered him $200,000. He spends all $200,000 on the down payments, and now he's back to no emergency fund and a $200,000 mortgage. And he has reasonably good credit.
(Now, some of us aren't fortunate enough to have family help chip in the cost of housing but that's not the main point of this post.)
If I were in his shoes, I probably would only take $100,000 for the downpayment and save the other $100,000 for an emergency fund. Do I sound crazy for proposing this instead? Sure, you'd have higher mortgage payments but interest rates are already pretty close to historical lows. Also, if he loses his job and can't pay mortgage payments, he'll be without a house and his parents $200,000 poorer, while if he had only put 100K down, he can draw on the remaining 100,000 to stay afloat while he looks for his next gig.
It seems nobody (at least in real life) understands my way of approaching this.. what do you think?
Well...how about taking the 200K and buying a 200K house? Shame on his parents for enabling his stupidity.
Is there a reason that your friend has no cash and reserves? If he uses 100k for a down payment and 100k as reserves, he will probably spend it on other stuff, new car, computer, TV.
A friend of a friend wanted to buy a house.. he has no savings or emergency fund.
It seems nobody (at least in real life) understands my way of approaching this.. what do you think?
ragnarkar--
Keeping an emergency fund in the face of the temptation to pay off debts isn't easy, but it's absolutely necessary. Anything beyond a 3-6 month emergency fund should be used to retire debts, yes. But don't throw your last dime at the mortgage.
Because if you blow all your cash on a big asset like a house, I can almost guarantee you'll walk outside to the bank's parking lot and your tire will be flat.
I'd rather pay 3.9% on a mortgage than 16.9% on a credit card all day.
I'm curious as to how his parents just 'gave him' 200k?
doesn't he have to pay taxes on that? (i have no idea how tax situations like that actually work....so i was just asking)
From what I understand, there's a 5.2 million exemption before gift taxes kick in.. it'll have to be reported to the IRS definitely.
I wouldn't dump it all into the house either. it really depends on his or her living costs as to how much he or she needs for emergency but on a 400k house...... Somewhere around 100-125k into the house is probably safe.
Parents can give 14k tax free to all children , children in law, or grand children per year I think.
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