If you want to purchase a home, you may be aware that your mortgage payment isn’t the only ongoing expense you’ll need to grapple with. You’ll also have to pay your property taxes and homeowners insurance, and properly maintain your home.
The last one can get expensive. And it can also be tricky to budget for.
When you sign a mortgage, your lender tells you what monthly payment you’re on the hook for. And while property taxes and homeowners insurance premium costs can change from year to year, you’re given those details annually, so you can plan around them.
Maintaining your home, on the other hand, could cost next to nothing one month, but $400 the next. And it’s these unknowns that have today’s buyers worried. In a recent survey by Ally Financial, 58% of buyers say they’re worried about maintenance and repair expenses. Here’s how to make sure you’re in a solid position to handle those costs — and avoid having them drive you into debt.
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How to budget for maintenance
When you own a home, maintenance and repairs are different beasts. Maintenance can, to some degree, be predictable. For example, if you have a lawn, you know you need to mow it. And if your home comes with a wooden deck, you know you need to clean and sand it regularly.
Repairs can be harder to predict. You could have a heating system that seems to work just fine, until it suddenly dies (usually in the middle of winter). So working repairs into your budget isn’t super easy.
That’s why it’s a good bet to set aside money in emergency savings for home repairs. Some people maintain a general emergency fund with enough money to cover a host of unplanned bills. You may decide to keep all of your emergency money together in the same savings account, or open a separate savings account earmarked for home repairs. The choice is yours.
But maintenance is something you can work into your budget, and you have two choices. The first is to ask the owner of the home you’re buying what they commonly spend on maintenance, and use that figure to guide your budget. Another option is to follow the convention that annual maintenance will cost between 1% to 4% of your home’s value, and budget accordingly.
That’s a pretty wide range, but if your home is older, favor the higher end of it. And if your home is fairly new, lean toward the low end. If your home isn’t all that old or new, well, it makes sense to land in the middle.
So say you buy a home for $400,000 that’s 10 years old. You may decide that annual maintenance will likely amount to 2% of that $400,000, or $8,000 a year. In that case, simply allocate $667 a month toward maintenance in your budget. Any month you don’t spend that much, save that money for the following month, and keep carrying those funds forward in case your maintenance costs rise at some point in the year.
Many homeowners are caught off guard when they realize how expensive it is to maintain a home. To avoid unpleasant surprises, factor that cost into your budget to ensure you reserve enough money to pay for it.