If you’re a homeowner and haven’t faced a big repair bill yet, wait. Even in the best-maintained homes, things wear out or break.
Budgeting for those inevitable bills isn’t always easy. An oft-cited rule of thumb – save 1% to 4% of your home‘s value each year for maintenance and repairs – can surprise homeowners when house prices soar.
Certified Financial Advisor Kate Mielitz recently purchased a home in Olympia, Washington, where the median listing price is $540,000, according to Realtor.com. Saving even 1% of that amount, or $5,400, would be overkill for many homeowners, says Mielitz, who advises low-to-middle-income clients. Saving 4% would mean setting aside $21,600 per year.
“I want to cry just looking at that number,” says Mielitz.
Age, condition, climate key
Rules of thumb are of limited value, however, because how much you spend often depends on the age of your home, the materials used and local weather conditions, among other factors, says John Wessling, president of the American Society of Home. Inspectors.
For example, a laminate shingle roof can last 35 to 40 years in St. Louis, where Wessling lives. But it could survive less than 15 years under the harsh Florida sun, he says. Extreme weather events can also wreak havoc on homes.
How well your home is maintained can also have a big impact, says Wessling. Many homeowners don’t notice window caulking drying and cracking, for example, but seeping water can cause huge 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 home value – in 2019, according to the latest US Housing Survey conducted by the US Census Bureau. But the amounts varied widely depending on the size and age of the houses, among other factors. For example, the percentage of a home’s value spent on maintenance has fallen from 0.2% for homes built in the 2010s to 0.8% for homes built before 1960.
What to set aside
People who prefer to hire other people should expect to spend more than do-it-yourselfers, says Mischa Fisher, chief economist for home services benchmark website Angi. Angi’s survey of 2,934 homeowners who paid for home renovations last year found they spent an average of $3,018 on home maintenance, Fisher says. These amounts generally varied between 0.5% and 1% of the value of their home. Additionally, owners spent an average of $2,321 on emergency repairs.
Fisher recommends homeowners set aside up to 5% of their income for home maintenance as well as $10,000 to cover emergency repairs and system replacements.
Another approach is to save based on the remaining life of the various components of your home, including the roof, heating and cooling systems, water heater and appliances.
You can search online for charts and articles that estimate component life, Wessling says. Similar research can give you an idea of replacement costs.
Alternatively, hire a home inspector to perform a home maintenance inspection, Wessling says. Like inspections that precede the purchase of a home, a maintenance inspection can estimate when various home systems are likely to need replacing. Wessling says he typically charges between $400 and $500 for inspections.
Let’s say you have a 5-year-old AC system, which typically has a lifespan of 15 to 20 years, says Wessling. If a new system cost $4,000, you could save $400 a year to cover it. You can add a fudge factor to account for future inflation, which unfortunately is unpredictable. Wessling suggests adding 20% to the projected cost and an additional $100 per year to your savings.
Other ways to prepare
Consider setting up a home equity line of credit that you can use if repair bills exceed what you have saved. These lines of credit tend to be cheaper than many alternatives, such as credit cards. Just make sure you can make the payments: if you don’t, the lender can foreclose on your home.
People who are struggling to save might also consider buying a home warranty, which can cover repairs and replacements to a home’s systems and appliances, Mielitz says. Its current warranty costs around $800 per year, while service visits to fix any issues cost $75 each.
Such contracts have their drawbacks: the customer does not control who does the repair, for example, and what is covered depends on the terms of the policy. Instead, Consumer Reports recommends people “self-insure” by putting the money they would spend on a home warranty into a savings account set aside for home repairs and replacements.
But Mielitz, who has been buying home warranties since 2008, says the contracts give him peace of mind at a reasonable cost.
“It’s a bit like car insurance. Hopefully you don’t need it, but you have it if you do,” Mielitz says.
The household spending statement is based on Angi’s analysis of surveys of 6,400 consumers between October 4-7, 2021. Home maintenance and repair spending statistics are based on responses from 2,934 homeowners and constitute a nationally representative sample of the population that spends at home. .