Many first-time homeowners spend years strategically squirreling their funds away so they can save for a down payment. While it’s one of the largest purchases they’ll make in their lifetime, their home savings strategy cannot necessarily end when they walk through their new front door. Home repairs are often an overlooked expense, but these “unexpected” costs should be carefully planned for. Take this recent study from Bankrate for example, showing that on average, a homeowner will pay a minimum of $2,000 a year on home maintenance. Bigger repairs, like a new roof or hot water heater can have hefty price tags even higher in the thousands.
Budgeting for home repairs is important because things will happen, something will go wrong – it’s just part of homeownership. So how can individuals and couples plan for the inevitable?
Consider the 1 percent rule. When figuring out how much you should strive to save to cover home repairs, one rule of thumb says to save 1 percent annually of your home’s total cost. So, if you bought a house for $250,000, you should set aside $2,500 for repairs per year. Of course, this is a rough formula and estimate, but it will get you into the habit of saving for eventual repairs that do come to light.
Bolster emergency savings account. Especially within the first year of owning a home, it’s important to get into the rhythm of new expenses. Don’t spend more than you make and keep building your savings account, even if it’s putting aside $50 per paycheck, if you can swing it. You will have to adjust to the “new normal” of bills, mortgage, etc., so be mindful to continue to save and keep these funds liquid.
Shy away from credit cards. Say you need to install an entirely new HVAC system, and the company hands you a bill for $10,000. What will you do? The most important step is to not get emotional and jump for your credit card. Too often, we see folks quickly throw a large expense on their card, only to be hit with high interest payments down the line. Consider your options (like the next tip) and try to avoid putting such a large expense on your credit card, if you can avoid it.
Negotiate with the repair company. Sure, a massive, unexpected expense is not fun, but often, these repair companies offer some kind of payment plan with zero/low interest rate payments. Work with the company to see how they can work with you to consider paying a large repair bill in installments vs. one large payment.
First-time homeownership is quite a milestone for any individual or couple, but it’s important to look ahead and consider these likely repair bills. Prepare, continue to bolster your savings, and understand your options and it will be easier to handle such expenses.