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When you buy a home, you do not plan to spend more than $ 20,000 on repairs.
But life is coming. The roof flees, the squirrels enter the attic and the plaster cracks. I did not have the money to cover these repairs, and it turned out that my experience was not unusual. According to a report by NerdWallet, three in ten homeowners are not prepared for the interview.
The best way to avoid my mistakes is to create an emergency fund for home repairs. Here is exactly how much you need and why.
Why your house repair fund is not negotiable
There is a big mental change when we move from renting to buying. "You own a property now, which means you're responsible for ongoing maintenance and repairs," says Kathleen Boyd, a financial planner in Long Beach, California.
Before buying a home, it's easy to think of rent checks as being your only housing expense. But once you own, there are many more costs to plan. You may need to repair your roof, clean gutters, fix faulty fixtures, and trim trees. When your HVAC or plumbing breaks down, replacing it can cost thousands of dollars. "If you're not prepared, it could ruin you financially," Boyd warns.
It may be tempting to delay repairs and basic maintenance, but it is often the case. Ignoring a termite problem or leaking roof will only gradually increase over time. "It's like a medical problem, if you have a toothache and you're not doing anything, the problem will only get worse," Boyd says.
How much budget for repairs and maintenance of the house
"Everyone needs a financial plan for their home," said Lindsay Youngbauer, financial planner and vice president of Diversified Trust in Nashville, Tennessee. Home repairs are unpredictable, which can make it difficult to budget. Often, you will not know if you have saved enough until you receive the bill.
She recommends saving at least 1% to 4% of the value of your home a year, depending on her age. This should be separated from your usual emergency fund by three to six months of living expenses. So, if you own a new home worth $ 300,000, try to save at least $ 3,000 a year. Youngbauer suggests drawing up a checklist to follow the ongoing interview. This is the best way to cover everything.
Boyd notes that the 1% to 4% rule is not perfect. "Depending on where you live, you could save too much or too little depending on the market value," she says. Nevertheless, it's a good place to start when you have no idea of the budget for repairs.
Another tactic is to keep a spreadsheet containing all possible repairs and maintenance. Your original home inspection report may have the age of each major system. According to Boyd, it's easier to predict how much time you have to save before replacing them. She says HomeAdvisor.com is a great resource for comparing costs.
Where to keep your home repair fund
Youngbauer and Boyd are hearing that it is important to keep the emergency fund for the repair of your home at hand, which means that you should leave the money in. species. You should look beyond conventional banks for higher interest rates. Make sure there is FDIC insurance of up to $ 250,000. Boyd recommends high-yield savings accounts like Ally Bank or American Express.
How to pay for repairs if you have not put money aside
Sometimes important systems fail without warning – your air conditioner stops in the middle of the summer or the water heater trips on the coldest day of the year. Their replacement can cost thousands of dollars, depending on the size of your home.
Unfortunately, these are things you can not ignore. If the repair fund in your home is too low or does not exist, it can be difficult to find the money. Fortunately, you have some options.
Youngbauer says that many people use equity in their homes to pay for repairs. You can do this by applying for either a home equity line of credit (HELOC) or a mortgage. The interest rate depends on your creditworthiness, which is a possible disadvantage. The biggest risk is losing your home if you can not pay it back. "If your mortgage payment is already too high, increasing your debt could be a problem," she warns.
If you decide to pay for repairs with the equity in your home, it's essential to make sure your payment plan is realistic. Before applying, review your monthly budget. There must be enough room for another continuing expense.
Do not be caught off guard
Home ownership is a big responsibility. As soon as you get the keys, start saving for your emergency fund for the repair of your home. To stay ahead, save money every month, as long as you own the house. When problems arise, take care of them quickly. "By ignoring routine maintenance, the value of your home could actually drop," says Youngbauer.
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