How Much Should You Budget for Home Repairs?

What Is the Rule of Thumb a for Home Maintenance Budget? 

When you're planning your budget for home repairs, the 1% rule of thumb is a step in the right direction. “Using 1% as a rule of thumb for home maintenance is actually a great example of when the common wisdom for something is pretty spot-on,” according to Mischa Fisher, chief economist at HomeAdvisor and Angi.

Fisher believes the numbers are pretty accurate. “Our latest ‘State of Home Spending’ report has average [annual] upkeep spending at $3,192, roughly 1% of the median home value in the U.S., which is a little over $300,000.”

The 1% rule is not a perfect measure for everyone. Your home’s age, condition, and location may require more.

Max Anderson is the product director at Porch Group, a home-services software company. He admitted that the 1% rule is often cited as the minimum bar, but he added that there are caveats. “That figure is a lower boundary and applies most commonly to newer homes built with modern, durable materials, located in temperate and dry climates,” Anderson told The Balance.

Quick Tips for Keeping Your Costs Down

  • Get a thorough home inspection in advance
  • Get quotes on insurance and maintenance before buying
  • Have your Realtor present all the numbers for specific properties you are considering
  • Be proactive about fixing items early
  • Consider a home warranty plan
  • Switch to energy-efficient appliances and improvements whenever you have to replace something

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Don’t forget repairs

While it may be possible to budget for home maintenance, one expense that’s far more difficult to budget for is home repairs. That’s because those can pop up unexpectedly and range in cost. A failing roof, for example, might cost a lot more than replacing a part in your heating system. And that might cost more than replacing a busted faucet.

That’s why it’s a good idea to maintain a solid emergency fund. That way, you’ll have cash reserves to tap if home repairs become necessary.

Of course, it’s also a good idea to budget some money every month for potential repairs. Or, you could simply allocate a little more money to maintenance to cover minor fixes. Either way, it’s important to make sure you’re able to tackle the various costs that come with owning a home — even though some may be trickier to estimate than others.

How to tailor your budget to what your home needs

In addition to square footage and/or home value, there are other factors to consider when planning your home maintenance budget:

  • Age of the home: This will directly correlate to the age of any major systems and components, like the HVAC system, plumbing, kitchen appliances, and roof. You should plan to replace your major appliances about every 10-15 years and keep in mind that even a brand-new home will require some level of maintenance.
  • Plans for future renovations: If you know that you want to update a bathroom in a few years, for example, you can break down that cost into a monthly amount and add that to your maintenance budget.
  • The regional climate: Seaside homes can take a beating from corrosive salt air and storms, so there might be a greater need for maintenance to paint, fences, and roofing. And if you live in an area that sees harsh winters, you’ll want to build in snow removal costs.
  • Materials: Some materials will require more or less maintenance than others. For example, Hardie board (cement board) siding tends to offer greater longevity and durability, while stucco can be more prone to damage.
  • Number of levels: Homes with basements will be more vulnerable to water damage and flooding, for example.
  • Family size and activity level: Generally speaking, the more children in a household, the greater the chance of wear and tear and the more frequent need for paint touch-ups and repairs.
Source: (Jake Ryan / Pexels)
Source: (Jake Ryan / Pexels)

Maintaining a Condo

Condos can be quirky. On one hand they are often smaller, and the building or development takes care of the exterior and infrastructure. Plumbing, electrical, sewer, landscaping, exterior walls, etc., are often handled for you. In turn you pay monthly or quarterly dues to the condo or homeowners association. In some cases you will have multiple levels of associations to pay.

Associations can also levy “special assessments” on unit owners. They often come big and very unexpected. If the board decides they want to put on a new roof or put custom pavers throughout the development, you could get a surprise $25,000 bill. You need to have some cash reserves to handle this unless you want to be forced into foreclosure.

Tip 4: Find additional ways to build home improvement and maintenance savings

Look for expenses you can cut out of your monthly budget, such as buying coffee every day or frequently eating out. Transfer the money you would ordinarily spend on those items into your home maintenance account. If you receive a tax refund, consider placing it into your home maintenance account.

How to prevent unexpected repairs

Aside from doing routine maintenance when you're in a home, one of the best ways to prevent unexpected repairs is to get a proper home inspection done before you ever close the deal on a new house. While the seller will often have an inspection done, Collins recommends that buyers also hire their own inspector to be really clear about the condition of the home.

"A lot of times homeowners focus much more on the surface-level items and cosmetics, and what you really need an inspector to do is to understand what's underneath the cosmetic items," she says. "Major foundational issues, inner wall issues, like major structural issues, are by far the most important thing for an inspector to catch and for a new homeowner to see, because [buyers] aren't going to see inside the walls."

And inspection can also help you be more aware of the timeline for when you'll need a repair and how much time you have to save for it. "You need to be aware when you're buying the house, which of these items are near being needed and factor that into your purchase," Scott says. "So if you have an inspection and the inspector says the roof only has two years left, well, maybe that's time—if you don't have the cash reserves, maybe before you close—to negotiate with the seller."

In this case, Scott says the buyer could go to the seller and ask them to put money in escrow to essentially pay for the new roof, saying, 'Let's put it in the contract that I'm going to pay you $10,000 more, or we're going to subtract $10,000 off the purchase price.' Then, when the roof needs replaced in a couple of years, the buyer can use that money to pay for it.

"The key isn't necessarily to avoid those costs, and the key isn't to save up all the moneyreally quickly," Scott says. "The key is to anticipate it and have a plan."

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FAQ About Home Maintenance Costs

1. What is a home warranty?

A home warranty helps cover the cost of things that homeowners insurance doesn’t cover. The typical home warranty pays in part for repairs and replacements of a home’s major components, such as: — HVAC systemsPlumbingElectrical Appliances Your home warranty would be a contract between you and a home warranty company.   According to Investopedia, a home warranty comes with an annual premium of several hundred dollars and a service call fee of about $75 to $125 every time you request service from a contractor.

2. What does homeowners insurance cover?

Homeowners insurance can cover many different things, all depending on the specific policy you sign up for.   Here are some examples of what homeowners insurance can help pay for (provided the deductible is met): — Structural repairs as a result of fire, wind, lightning, hail, or other natural disastersReplacing personal property inside the home that gets stolen or damagedMedical and legal expenses if someone gets hurt while in your home or on your property Homeowners insurance does NOT cover routine maintenance and repairs. 

3. How do you find a good contractor for home maintenance and repairs? Letting a stranger into your home can be nerve-wracking, and you want to make sure you find a contractor you can trust. Here are some tips to follow when you’re looking for a new plumber, electrician, handyman, etc: — Get quotes from at least three different contractors in your area for price comparison — Look for positive reviews on third-party sites (such as Google or Nextdoor) instead of on the company’s own website — Ask for proof of up-to-date licenses — Make sure the contractor has insurance — Look for longevity. If possible, choose a company that has been in business for 10+ years 

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Sweepstakes

Tip 1: Set aside money for ongoing home maintenance

Some specialists recommend setting aside 1% to 2% of the purchase price of your home each year for routine maintenance projects such as roofing repairs, sewer updates, or new appliances — each of which can cost several thousand dollars. If 2% seems too much, consider starting with less and working your way up. Finally, if your home has greater maintenance needs, consider whether budgeting more than 2% is necessary.

You probably won’t need to repair everything at once, but it’s a good idea to have money set aside for when problems do arise.

4. Where should you save money for emergency home repairs?

The best place to save money for emergency home repairs is in a savings vehicle that’s relatively liquid.

“You’re going to need to get at this cash quickly and easily when something happens,” Glink says. “Don’t tie it up into long-term bonds just because you think you’ll earn a little more in interest. Find an FDIC-insured bank account that pays the best rate of interest you can find.”

Sunny skies are the right time to save for a rainy day.

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Online Savings Discover Bank, Member FDIC

Budgeting for unexpected home repairs and saving that money in a high-interest online savings account has a lot of benefits. You’ll earn interest on your funds while they are parked in your account, and with an FDIC-insured bank, your account will be insured up to the maximum allowed by law if the bank fails. Another online savings account benefit is that you can easily withdraw money when a home emergency pops up.1

“I have a separate online savings account where these funds live,” Lisa says.

Keeping your home repair and maintenance fund in a separate account can help you save money for emergency home repairs by making it more difficult to dip into the funds for an expense not related to its intended purpose.

How do you plan for home maintenance?

To plan for home maintenance, keep a close eye on the condition of your home. For example, clean out your gutters regularly and replace your HVAC system filters when dirty. Look for leaks around toilets and sinks and inspect the outside of your home, including the foundation, so see if any cracks or other issues are starting. If you're uncertain of what to do or what condition your home is in, it never hurts to consult a professional.

Count the Potential Cost

Once you’ve established the need for budgeting for home system and appliance repairs and replacements, the question becomes how much money should you allocate for potential expenses?  If you’ve been a homeowner for a number of years, one way to plan is to review your home-related repair, replacement, and maintenance expenses for the last several years and calculate an average yearly projection. Then, divide that average by 12 to determine how much of your monthly income you should set aside. If you have online banking, it could be as easy as running a quick report to track your spending habits over a period of time.

Some experts suggest setting aside one to two percent of the purchase price of your home for household maintenance to include unexpected repairs and replacements. So, if you paid $200,000 for your property, you would budget between $2,000 to $4,000 a year or $167 to $335 per month.  Another common way to determine how much money to save for surprise home repairs is to base the amount on the square footage of your home.

With both of these approaches, it’s important to also consider some other factors that might influence how much you’ll need to spend. For example, if you have an older home that hasn’t been remodeled in a while, you may anticipate that more breakdowns will occur with the older systems and appliances and budget up to four percent of your home’s purchase price.  Or, if you have a big ticket item maintenance item that’s looming, such as needing a new roof, you might need to save more in the years leading up to that expense.  Conversely, if your home is new or if it has been recently remodeled or renovated with new systems and appliances, you might save on the lower end of the recommended scale.

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