Once you purchase a home, you might assume that your only homeownership cost will be your mortgage and utilities. If you have rented in the past, your landlord was likely responsible for most major repairs. However, your mortgage and rent are not one-to-one comparisons. You will also need to consider the cost of home repairs. For example, if a pipe bursts, it will be up to you to repair it and fix any related damage.
Paying for These Expenses
If you have an immediate need, you will need to fix it, whether you can currently afford it. One way of covering the costs of these expenses is to take out a home equity line of credit. It is a great way of taking care of having expenses to pay for immediately. You can review a guide on everything you need to know about going this route.
Creating a Budget
If you have a little more time before you need to perform the fix, you can start setting aside a little money here and there. It is a good idea to slowly build up a savings fund to cover emergency repairs on the house. Try to set aside a total of about one to three percent of the purchase value each year. For example, if you paid $500,000 for the house, you might put about $5,000 in the account each year. That would be just over $400 a month, or a little over $200 from each paycheck being set aside.
You will likely not spend this amount of money every year. For example, some years, you might only spend a percentage of that painting the exterior. But other years, you might need to spend many thousands of dollars repairing the roof. But if you even it out over the long-term, it will likely work out to about one to three percent. It is a good idea to have home maintenance checks scheduled regularly as well. Professionals can look for issues such as signs of leaky roofs or rotten pieces of wood and fix them before they become major issues. That can keep your costs down as well.
Tips for Creating a Budget
You will also want to think about your needs. For example, consider what needs to get done first and work that into the budget. There is a clear financial difference between aesthetics like adding plants to your home to improve air quality and replacing an entire HVAC system to improve air quality. So, if you know you will need to replace a large appliance at some point, get a realistic estimate of the cost and begin saving funds for that. No matter what appliances you will be replacing next, look for energy-efficient options. That can reduce the costs of utilities such as gas, water, and electricity.
It is a good idea to use credit carefully if you can’t afford the full cost at the moment. Try to cut expenses wherever possible and save yourself some money. It is a good idea to avoid getting new credit cards to fund large projects until you have tried every other option open to you. For example, you can do some minor repairs yourself.