Liz Weston, CFP®
If you own a home and haven’t faced a large repair bill yet, wait. Even in the best-maintained homes, things wear out or break.
Budgeting for these inevitable bills isn’t always easy. A commonly cited rule of thumb – saving 1% to 4% of your home’s value each year on maintenance and repairs – can shock homeowners when property prices skyrocket.
Accredited financial advisor Kate Mielitz recently purchased a home in Olympia, Washington, where the median list price is $ 540,000, according to Realtor.com. Saving as little as 1%, or $ 5,400, would be a stretch for many owners, says Mielitz, who recommends lower-middle-income clients. Saving 4% would mean setting aside $ 21,600 per year.
People are also reading …
“I want to cry just looking at that number,” says Mielitz.
The costs of the house depend on the age, the conditions, the climate
Rules of thumb are of limited value, however, because how much you spend often depends on the age of the home, materials used, and local climate patterns, among other factors, says John Wessling, president of the American Society of Home Inspectors.
For example, a glulam tile roof can last 35 to 40 years in St. Louis, where Wessling lives. But he could survive less than 15 years in the scorching Florida sun, she says. Extreme weather events can also devastate homes.
Looking after your home can also have a big impact, says Wessling. Many homeowners don’t notice window caulking drying and cracking, for example, but water getting inside can cause massive damage.
“What could be a $ 12 or $ 15 repair could turn into a $ 15,000 or $ 20,000 expense to rebuild that wall under the window,” says Wessling.
Homeowners spent an average of $ 950 on home maintenance – or 0.6% of the home’s value – in 2019, according to the latest American Housing Survey conducted by the US Census Bureau. But the amounts varied considerably based on home size and age, among other factors. For example, the percentage of a home’s value spent on maintenance went from 0.2% for homes built in 2010 to 0.8% for homes built before 1960.
Decide how much to set aside
People who prefer to hire others should expect to spend more than do-it-yourselfers, says Mischa Fisher, chief economist for home services reference website, Angi. Angi’s survey of 2,934 homeowners who paid for home improvements last year found that they spent an average of $ 3,018 on home maintenance, Fisher says. These amounts typically ranged between 0.5% and 1% of their home’s value. Additionally, homeowners spent an average of $ 2,321 on emergency repairs.
Fisher recommends homeowners set aside up to 5% of their income for home maintenance and $ 10,000 to cover emergency repairs and system replacements.
Another approach is to save based on the remaining life span of the various components in your home, including the roof, heating and cooling systems, water heater, and appliances.
You can search online for graphs and articles that estimate typical component life, says Wessling. Similar research can give you an idea of the replacement costs.
Alternatively, hire a home inspector to conduct a home maintenance inspection, says Wessling. Like the pre-home inspections, a maintenance inspection can estimate when various home systems will likely need to be replaced. Wessling says it typically charges $ 400 to $ 500 for inspections.
Let’s say you have a 5-year air conditioning system, which typically has a lifespan of between 15 and 20 years, says Wessling. If a new system costs $ 4,000, you could save $ 400 per year to cover it. You could add a melting factor to account for future inflation, which is unfortunately unpredictable. Wessling suggests adding 20% to the expected cost and an additional $ 100 per year to your savings.
Other ways to prepare for home expenses
Consider creating a home equity line of credit that you can take advantage of if your repair bills exceed what you’ve saved. These lines of credit tend to be less expensive than many alternatives, such as credit cards. Just make sure you can make the payments – if you don’t, the lender can foreclose your home.
People struggling to save might also consider purchasing a home warranty, which can cover repairs and replacements of a home’s systems and appliances, says Mielitz. Its current warranty costs around $ 800 per year, while service visits to resolve any issues cost $ 75 each.
Such contracts have their drawbacks: the customer does not control who performs the repair, for example, and what is covered depends on the terms of the policy. Consumer Reports recommends that people “insure themselves” by putting the money they would spend on a home warranty into a home repair and replacement savings account.
But Mielitz, who has been buying home warranties since 2008, says the contracts give her peace of mind at a reasonable cost.
“It’s kind of like car insurance. Hopefully you don’t need it, but you do if you do, ”says Mielitz.
Home spending status is based on Angi’s analysis of surveys of 6,400 consumers between October 4 and 7, 2021. Home maintenance and repair spending statistics were based on responses from 2,934 homeowners and they are a nationally representative sample of the household spending population.
This article was written by NerdWallet and was originally published by The Associated Press.