You’ve just made the biggest purchase of your life. You came up with the down payment and closing costs and committed to paying off a loan that probably stretched out for 30 years.
You may think you’re done with outgoing expenses and are ready to settle in as a new homeowner.
Not so fast!
As a new homeowner, you must also plan for recurring home maintenance expenses to protect your investment. While you won’t see any immediate outlay, if you’re smart, one of the first things you’ll do is set up a budget for all your household expenses, including inevitable maintenance costs that will occur sooner or later.
In addition to homeowners’ insurance, you must set aside funds for expenses not covered by a policy.
It’s never too early to start thinking about how to plan for costs associated with:
- Decks and porches
- Heating/AC/water heaters
- Electrical systems
- Termites, water, and mold issues
Many of these can cost thousands of dollars, so setting aside a substantial amount of money for them is essential. That’s a better strategy than incurring heavy-duty borrowing expenses for maintenance and repairs through your primary savings account, credit cards, or a HELOC loan.
Here are some things to consider and strategies to help proactively plan for repair and maintenance costs when they hit home.
Home Maintenance Factors to Consider
Where you live and the age of your home can impact how much you’re likely to pay over time. A dry, moderate climate will impact a house less than a severe weather area. Also, if your home is relatively new, many big-ticket items will be nearer the beginning of their useful service life than the end.
If you bought a fixer-upper, you must save money for renovation and repair projects. Beyond repairs, there are plenty of necessary costs for a home’s upkeep. You’ll need regular HVAC system maintenance to avoid high energy costs or costly bills.
Though it’s difficult to predict when you’ll need to replace or repair major appliances or household systems, the National Association of Home Builders publishes reports on typical life expectancies for many home components.
Although the list tends to be a bit conservative, seemingly listing the minimum life expectancy one should expect from a given system or appliance, it is useful for estimating the relative life expectancy of certain home components.
Further complicating matters is that home maintenance is not a constant expense. Costs could be minimal for one year and a budget killer if you need a new roof or have major plumbing issues in the next one.
Problems with deferring “optional” maintenance
Maintenance costs depend partially on the condition in which you will keep your home. While some things, like a dead furnace in the middle of winter, require immediate attention, other things, such as replacing a worn garage door or painting the exterior, don’t have to be done immediately but will require attention at some point.
There are several problems with deferring “optional” maintenance. Deferring maintenance could cost you more over the long run as neglected repairs cause other issues to worsen, such as a leaky roof that leads to water damage on your ceilings or an unsealed driveway that develops bigger cracks every winter.
Finally, other needed repairs will pop up while you defer maintenance on the original items, meaning your to-do list gets bigger, more expensive, and less manageable.
You’ve probably heard about how home improvements can enhance the value of a home by adding an extra room, a deck, or a finished basement.
Neglected home maintenance is just the opposite – by not spending money on needed maintenance projects, your home value will go down, even though you appear to be saving money on the projects themselves. But you’re losing value over the long run.
Home Maintenance Tips and Strategies
Every home and every homeowner’s situation is unique, but here are some general guidelines to consider when it comes to home maintenance and repairs.
Set up a home maintenance fund
Get in the habit of saving for rainy-day repairs by setting up a home maintenance fund soon after you buy a home. It’s easier to tap into a dedicated pool of money as needed instead of modifying your regular budget when repairs occur.
Experts recommend setting aside at least 1% of your home’s value annually to soften impacts when a major expense pops up. Depending on the type of home you buy and where it’s located, consider bumping this up to as much as 4% if your budget allows.
The high end is generally reserved for owners who want to keep their home in pristine condition with frequent painting inside and out and upgrading appliances before they reach the end of their service life.
If repairs cost significantly less than your accumulated reserve fund after ten years or so, you can put some of it into other investments or a major home improvement you otherwise might not have been able to do.
However, even 1% of your home value each year will equal about two month’s mortgage and interest payments, depending on your interest rate. That does make it a significant cost to account for.
Set up automatic transfers to save for home maintenance
A smart way to save is by setting up a separate home maintenance account and funding it with automatic transfers. Find an amount you can afford, set it, and forget about it until you need it.
Get creative with finding ways to save
Cut unnecessary expenses like dining out less often, passing on morning coffee at Starbucks, or looking for cheaper recreation and vacation options. Transfer the money you ordinarily spend on those items into your home maintenance account.
Also, add lump sums as they come in, such as tax refunds, until you hit your 1-4% goal.
Consider the square footage rule
The square-footage rule is another option for estimating how much you should save for home repairs. It is less preferred by industry experts and suggests putting away $1 per square foot of your home for annual repairs.
A fixed price per square foot glosses over some of the most important factors in home maintenance costs, like labor costs for home services. It does not take into account variables in larger expenses or regional differences in repair costs.
For example, you could pay two or three times more in labor costs to replace a roof in Southern California than in rural Iowa.
Also, the square footage rule does not account for higher-end appliances and finishes, which are more costly and you likely paid more for when you bought your home.
Adjust your savings amount based on your home’s age and the quality of components
If your home is about 30 years old, you could face major repairs like a new roof.
Composition shingles last up to 20 years, wood shingles up to 25 years, and asphalt shingles up to 30 years.
Exterior wood siding lasts 4-7 years, fiber cement has an estimated life of 10-15 years, and brick lasts up to 20 years.
Water heaters last up to 12 years, while tankless heaters last up to 25 years.
Consider the major systems in your home, such as plumbing, heating/cooling, roofing, and foundation, and anticipate as best you can when they might reach the end of their useful service life.
Also, consider climate and the quality of the materials currently used in your home.
Keep a good handyman close
A good general maintenance person can proactively spot small problems before they grow and can help you save money by nipping problems in the bud early.
Get a home warranty
A home warranty is a contract between a homeowner and a home warranty company. It helps to cover the cost of repairing or replacing major systems in the home, including HVAC and plumbing. It is usually offered when you buy a home, or you can buy one later.
Consider other ways to pay for repairs
What if expenses come up and you don’t have enough saved? If you don’t have enough cash on hand, you could use the equity in your home to borrow what you need.
With a home equity loan or line of credit (HELOC), you can access cash when needed for a major maintenance expense.