4 Tips to Plan (and Budget) for Unexpected Home Repairs

Once you become a homeowner, your expenses don’t stop at your monthly mortgage and utility bills. You’ll also need to cover home maintenance and repairs, too — and the latter aren’t easy to predict.

Some years, you might have a few minor fixes — a leaky dishwasher or a few loose roof shingles after a storm. In others, you could find yourself facing major plumbing problems, foundation issues, or a system or appliance in need of full replacement.

This unpredictability makes it important to have a solid repair fund set aside just in case.

“A mistake made by many new homeowners is overspending on home comforts like new furniture, new flooring and other home accessories,” says Harmon Kong, founding director at financial planning firm Apriem Advisors. “This is fine, but it shouldn’t be at the expense of having an emergency fund and a home repairs fund. Being a homeowner requires an additional financial responsibility than being a renter.”

Are you new to homeownership? Want to make sure you have the funds necessary to cover repairs when they arise? Here’s how to do it — and how much to save.

1. Budget for a baseline sum

Generally speaking, most experts say you can expect to spend anywhere from 1% to 4% of your home’s value on home repairs and maintenance annually. That means for a median-priced home (worth about $419,000), you’d need between $4,190 for a good year and nearly $17,000 for a bad one. A new study by Thumbtack estimates that annual home maintenance and repair costs run to about $10,600 – or roughly in the middle of the experts’ estimated range noted above.

“The costs can vary depending on the severity of repairs needed,” Kong says. “A home repairs fund can cover unexpected costs, such as plumbing leaks, water heater replacement, home appliance repairs, roof damage and electrical repairs, to name a few.”

Such a fund should also cover general maintenance of the home, too, which includes the likes of cutting lawns and pruning trees, staining decks and painting window frames, and cleaning ducts and the chimney.

While the 1% to 4% rule is a good guideline to follow, in truth there are lots of factors that should come into play when setting your home repair budget.

To start, there’s the age of your property to take into account. Older homes typically require more repairs than newer ones, and those repairs could very well be bigger and more expensive, too. For this reason, “base your repair and maintenance budget on the age of your home,” says Eric Elkins, CEO of Double E, a financial solutions firm.

Elkins recommends adding an additional 0.5% of your home’s value to your repair fund for every five years the property ages. So, for a five-year-old home, you’d start with the basic 1% of your home’s value. Then at 10 years, you’d add another 0.5%, and at 15 years, another 0.5% (totaling 2% of its value) and so on.

2. Adjust the amount for condition and climate

The condition of your home, whether good or bad, should also be factored in, since homes that have not been well-maintained will likely have more repairs. Then there’s the local climate. You can generally expect to have more repairs in places with harsher climates or more extreme temperatures. Areas prone to natural disasters come with a higher risk of needed repairs, too.

Finally, consider your homeowners insurance policy and any home warranties you have. An insurance policy that requires a high deductible or little coverage for common risks in your area will mean you’re on the hook for more out-of-pocket costs should something go awry. Therefore, you’ll need a bigger repair fund to cover things.

“Take into account your policy deductible for various home damages,” Kong says. “Housing costs have risen dramatically in recent years, so replacement and home repairs may

3. Automate payments into a suitable account

It can be hard to save up thousands upon thousands of dollars for potential home repairs. Fortunately, a few key strategies can make the process easier.

First, determine how much you can and should contribute. “To come up with an appropriate amount to set aside each month, you should strike for something meaningful, yet doable,” says David Johnston, managing partner of Amwell Ridge Wealth Management.

“So, $25 per month may be very doable, but you won’t find it very meaningful, having only $300 saved a year later.” On the other hand, Johnston says, planning to save $1,000 per month “may be very meaningful, but perhaps not doable.”

You should also set up a schedule for stowing away cash. Automate your savings, suggests Eric Coons, owner of Kaleidoscope Financial. “Set up a monthly transfer from your paycheck or checking account into a dedicated savings account for repairs. You can also allocate tax refunds or bonuses to the repair account.”

And perhaps most importantly, put your funds in an account that’s easily accessible, yet can help you build your savings up steadily over time. Choose an option that pays a decent interest rate and offers liquidity in case you need the cash in a pinch.

“The goal of these funds is not to make money so much as [to make cash] available when you need it,” Kong says. So, investing in the stock market, cryptocurrency or any other investment where there’s a risk of the balance fluctuating downward is not a good idea, he adds. “The best options would be a savings account, a high-yield money market account or some other safe cash-equivalent account where you can access your funds quickly.”

There are lots of options for where to store your cash, but just make sure the money isn’t mixed in with your checking account or anywhere else you pull money from on a regular basis. This can create the temptation to pull from your repair fund for day-to-day expenses, which could leave you short on cash when an emergency arises.

4. Start now

Try to start saving immediately, if you can. Home repairs aren’t always predictable, and in some cases, they can be quite expensive. If you want to avoid using credit cards or other pricey means of borrowing if your house needs fixing, having a solid repair fund saved up is a necessary part of homeownership.

“If you’re a homeowner and have yet to establish a home repair fund, I recommend starting as soon as possible,” Kong says. “Being prepared is always better than getting caught off-guard with unplanned expenses.”