In the past year, nearly half (47%) of all homeowners have had to endure unexpected home repair costs that they hadn’t planned for. Home repairs are often one of the most overlooked costs that go along with homeownership and planning for these anticipated costs can help homeowners save thousands.
Jean Chatzky, an-industry leading personal finance expert, the CEO of HerMoney.com, and the host of Everyday Wealth, a new radio show & podcast presented by Edelman Financial Engines, says some of the most common expenses new homeowners encounter are significant: air conditioning, plumbing leaks, water heaters and refrigerators. According to the Joint Center for Housing Studies of Harvard University, home owners should plan to spend 1-2% of the value of their house each year on maintenance.
“I don’t think people think nearly enough about what it will cost to live in a new home beyond property taxes and insurance.” Chatzky says. She believes one of the best ways to avoid surprise costs starts with the inspection, which often people are waving during the home buying frenzy of the past year. “If you do the inspection correctly, and you walk through with the inspector, the hope is you come away with a roadmap of things that need to be fixed.” This doesn’t mean a broken washer should be a dealbreaker necessarily, but at least you know upfront what the expenses will be, and can try to negotiate accordingly upfront.
Chatzky points out that the cost of a new home isn’t just the sticker price, it’s about the new lifestyle as well. She recommends being thorough before buying a new home, and doing a deep dive on how much you’re going to need to buy and how the move affects your lifestyle. What will you have to spend on furnishings, and what do you need to replace? How does the commute change? Are you going from one car to two? Each of these expenses and changes are part of the home purchase. She also suggests asking a friend with a nearby home that’s similar to your potential purchase about their home budget. Ask them what they spend on gutters, home maintenance, snow removal and monthly utilities. This will help give a realistic picture on your upcoming expenses, and the true cost of your home.
Once you settle on your new home, a key way to minimize expenses is to be proactive and purchase a home warranty. A warranty for your home is an annual renewable service contract that provides protection should a covered breakdown occur. Home warranties like the ones through American Home Shield can reduce the cost to repair or replace many of the systems and appliances in your home that could cost thousands if they fail. Chatzky says one of the biggest benefits of a home warranty is the network of service providers you can access when something breaks down.
Finally, if you’ve already bought a home and now are stuck with more expenses than you can handle, Chatzky says there are things you can do to ease the expenses.First, she says that the first few months of expenditures may not be representative of your average home expenses going forward. But if after a few months you’re still feeling drained, she recommends tracking your spending. “It’s possible that you are now spending more on food and ordering in more often. Or you may notice that you are driving more and can try to minimize the trips out of the house. Go back and look at where all of your money is going and you’ll be able to see where you can start to make changes.”
Tune into Everyday Wealth’s podcast “An economist’s take on what’s happening today” for more tips and insight on homeownership.