Home Repairs

How do I budget for home repairs?

It’s impossible to predict exactly what maintenance your home will need, how much it will cost, and when it will become necessary. Average homeowner costs can be helpful, but averages are only a starting point for your home’s annual maintenance budget and don’t take into account your unique circumstances. You must calculate the personal factors that may increase or decrease your maintenance costs on an annual cycle, including your home’s location and age, the weather in your area, and the home’s general condition.

Most homeowners know that they should budget for expenses such as the mortgage, insurance, utilities, and taxes. However, many overlook another inevitable household expense – home-related repairs and replacements. If you fit within this category, read on for tips that can help you become financially prepared.

It’s a fact of life that home systems and appliances don’t last forever and that they will eventually break down, even from just normal, everyday wear and tear. When that happens with a major system, repairs or replacements can be expensive.

The financial responsibilities of homeownership certainly don’t begin and end at closing. All too often, many first-time home buyers find themselves surprised at the cost of emergency repairs or ongoing home maintenance once they finally move into their home. For this reason, it’s wise to start budgeting for routine home repairs and maintenance by setting aside a little each month.

There are two common “rules of thumb” regarding how much money you should budget for on an annual basis for home repairs. Here we’ve presented you with both, so you can see which might make better sense for you when creating a budget.

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The Home Repair 1-4% Rule

This is a “rule of thumb” that no one can truly seem to come to a consensus on. A wide berth of financial experts across the industry suggests that you set aside as little as 1% or as much as 4% of your home’s total value each year to budget for maintenance or emergency home repairs. So if you paid $250K for your home, you would set aside somewhere between $2,500-$10,000 every year.

While this may seem like an efficient way to save for home repairs, critics of this rule of thumb argue that the amount set aside is somewhat arbitrary, and doesn’t account for a wide variety of factors, such as the age of your home, whether most of the value of your home is in the land itself, whether your home is attached or single-family, etc. These criticisms are valid. If the aforementioned factors apply specifically to your home, or if you feel it’s unreasonable for you to set aside that much cash every year, you might prefer the next option.

Home Repairs

The $1 Per Square Foot Rule for Home Maintenance

This rule of thumb uses your home’s size to budget for your home repair fund, instead of the value. So if your home is 2,500 square feet, you would need to save at least $2,500 per year for home maintenance and repairs.

If you’re worried that neither of these rules allows you to save up enough to cover the high cost of home repairs in your area, then it’s important to do a little research. What might your home need to have replaced in the next five years? A backyard fence? Flooring? Old pipes? A new roof? Are there issues in your area with excessive moisture build-up or even flooding?

In order to get a good idea of what your most pressing home repairs might cost, you can gather quotes from local contractors, or talk to other homeowners that you’re friendly with in your neighbourhood about the costs of their recent home repairs. If you prefer to do less legwork, you can always hire a licensed home inspector to assess your home, help you identify its biggest weaknesses, and give you estimates for the cost of repairs and replacements in your area.

Add Home Repairs to Your Budget

It’s easy to see how just one breakdown can conceivably bust even the most well-executed financial plan. That’s why it’s a good idea to build in allowances for unexpected home repair expenses into your household budget. Ideally, this line item should be in addition to any “emergency fund” set up for job loss or savings for other purposes.

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? Suppose you’ve been a homeowner for a number of years. In that case, 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 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 some time.

Some experts suggest setting aside one to two per cent of your home’s purchase price 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 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 remodelled in a while, you may anticipate that more breakdowns will occur with the older systems and appliances and budget up to four per cent 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 remodelled or renovated with new systems and appliances, you might save on the lower end of the recommended scale.

More Ways to Save: Routine Maintenance

In addition to budgeting and saving money so that unforeseen home repairs and replacements don’t cause a financial strain, you can take steps to help your systems and appliances retain their value.  

According to WiseBread.com, a little basic maintenance can help you maximize the life expectancy and resale value of some of your home appliances, such as your washer, dryer, and refrigerator. Even regularly changing your heating and air conditioning filters can help your systems run more efficiently (and potentially help you save money on energy bills). Staying on top of routine maintenance and catching up on any delayed maintenance can help you minimize the necessity for potential household repairs.

Another approach to financial planning for anticipating home repair and replacement expenses is purchasing an American Home Shield Home Warranty. A home warranty is a service agreement, usually for one year, that covers the repair or replacement of many major home system components and appliances that typically break down over time due to normal wear and tear. Different from home insurance coverage, a home warranty helps protect a homeowner’s budget from the costs of unexpected, covered breakdowns or repairs. In contrast, home insurance generally provides coverage for the structure and personal belongings inside the home in catastrophic events.

While specific coverage varies according to individual home warranty plans, major home systems like the furnace, central air unit, electric, plumbing, and water heater are often included. Some plans may also cover common household appliances like the refrigerator, washer, dryer, dishwasher and oven. You also may be able to add optional coverage for items like a pool, spa, or guest unit. It’s important to read and understand specific home warranty contract terms before you sign up so that you know in advance exactly what items are covered and what to expect when a breakdown occurs.

With most home warranties, you sign a contract and pay an annual or monthly fee for the coverage period, which is usually a year. This type of coverage may be helpful because, when a covered item breaks down within contract terms, the only additional payment required by many warranties (in addition to the contract price) is a pre-determined service call fee or trade service call fee for each contractor that is needed to complete a covered repair or replacement. This arrangement can help you protect your budget by knowing in advance that you won’t have to pay more than the annual price of the home warranty plus the service call fee for covered malfunctions.

Regardless of how much you save for home repairs or whether you choose to protect your budget with a sensible home warranty, the important thing is to plan for covering the expenses of unanticipated home system and appliance breakdowns. 

Having a plan in place and money in the bank will help lessen the stress when a major system or appliance fails. Setting aside money for such events will also lessen the possibility that you’ll incur credit card debt and associated interest payments to get your household up and running properly again.

Check out our Melbourne home repairs to help you to build your dream house. 

Creating a home repair and maintenance budget

You just purchased your first home, so the last thing you probably want to think about is saving up for the maintenance and repairs it’ll inevitably need. But, as any seasoned homeowner will tell you, this should be one of the very first things you plan for. And if you’re starting to look for a house, even better – understanding how much you might need to budget for home repair and maintenance can help you get a more accurate cost of what it means to be a homeowner.

The costs of owning a home are more than just your down payment or monthly mortgage payment. Regular home repair and maintenance is a must if you want to protect your investment. There’s also the cost of surprises, which can sometimes be in the thousands of dollars – say if your furnace goes in the middle of winter.

So how, exactly, do you budget for home repairs and maintenance? While it’s impossible to predict exactly how much money you’ll need, here are some tips to get you started.

Continue to build your savings.

According to conventional wisdom, a homeowner should save at least 1-3% of the home’s purchase price each year for regular maintenance and repairs. For example, if you purchased your home for $250,000, you should save at least $2,500 per year or a little over $200/month. Consider setting this money aside in its separate bank account, so you only tap into it when needed.

Prioritize repairs and maintenance. What’s most important?

If you know, you’ll need a new roof soon, get an estimate for the work ASAP and start planning for that expense. You may need to wait on minor or less urgent maintenance if a costly or surprise home repair is necessary.

DIY maintenance and repairs

Can you shovel snow and mow the lawn yourself? Are you willing to watch YouTube tutorials to learn how to fix your toilet? Save money on the tasks you can do, so you can use your cash reserves for the ones you can’t.

Don’t forget to account for operational expenses in your budget.

Identify the regular maintenance tasks you’ll need to perform each year and create a budget for these items (there’s a handy list here). Don’t forget to budget for water, electricity, gas, trash service, sewer, snow removal and lawn care. You’ll also want to consider your home’s physical location, age and condition.

Finding Maintenance and Repair Funds

It’s not always possible to stash money away for your annual maintenance fund, and if you’re facing an emergency repair, you might find yourself scrambling. Home equity loans can help homeowners fund necessary maintenance when it’s least expected. Many local governments also offer weatherization assistance and home repair programs for low-income and aging residents, especially in disaster-prone areas. Your tax dollars fund these initiatives, and you shouldn’t hesitate to reach out for assistance during an emergency.

How to budget for monthly maintenance and repairs

Taking care of ongoing tasks and repairs can help you keep your house safe, comfortable, and energy-efficient—but it takes money and time. Consider these five tips to budget for ongoing home improvements:

Tip 1: Set aside money for ongoing home maintenance

Some specialists recommend setting aside 1% to 2% of your home’s purchase price 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.

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

Tip 2: Set up automatic transfers to save for home maintenance

Consider creating a separate home maintenance account and funding it with automatic transfers from your checking account. How much should you transfer?

  • Calculate 2% of the purchase price of your home. For example, 2% of $250,000 is $5,000.
  • Divide the amount by 12 to calculate your monthly transfer—for this example, approximately $415.
  • If that amount is too much, consider an amount that fits your budget and work to increase it over time.

Give the separate account a nickname such as Home Maintenance and get peace of mind watching the balance grow over time.

Tip 3: Budget for home improvements

In addition to ongoing maintenance and repairs, you’ll probably want to make improvements to your home over time, such as new carpets, kitchen counters, or windows. You may want to make improvements to your landscape as well. These improvements can make your home more enjoyable and attractive.

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.

We have an extensive range of home repairs Melbourne services at Hitch Property Constructions.

Tip 5: Use online tools to manage your finances

Our online tools can help you budget and plan your finances easily:

  • My Spending Report with Budget Watch: Tracks purchases you make with your eligible Wells Fargo credit card, debit card, and checking account. You can also track your Bill Pay transactions. If you don’t have Online Banking, it’s easy to sign up.
  • Budget Watch: Allows you to create a simple online budget in just minutes. Updated each business day, Budget Watch provides you with daily money In and Money Outflows, so you can see how close you are to meeting your budget goals.
  • My Savings Plan®: Helps you save for your goals and automatically monitor your progress.

Budgeting for home maintenance and repairs can seem overwhelming. Still, if you start putting a small amount aside regularly, you’ll be more likely to have the money to pay for repairs and maintenance when needs arise. When you maintain your home on a regular basis, you help protect the value of one of your most important assets.

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