Most Homeowners Underestimate How Much Home Repair Costs
You know it will happen at some point. A pipe will break, or your HVAC system will go on the blink, and you’ll end up with a huge home repair bill. The question is, will your wallet be ready for you?
According to a recent survey by financial services firm Synchrony, the answer for most homeowners is a resounding no. Although many do set aside money for home repairs, they greatly underestimate how much money they will need during the time they live in the home.
Research has found that people tend to estimate “lifetime” maintenance costs at $70,000. In fact, that cost will be around $339,000, with the price tag rising to more than $400,000 if emergency repairs are needed. Synchrony’s projections are based on estimated costs over nearly fifty years of home ownership.
Curtis Howse, who leads the home and auto division at Synchrony, said in the report that such a large discrepancy between homeowner estimates and actual costs shows “a significant disconnect between perception and reality.”
Lack of knowledge about general care needs leads to another sad trend highlighted in the survey. 90 percent of respondents said they have a need for home repairs, but almost half have never faced it due to high costs. When repairs are delayed, even small repairs can become major problems in the long run, increasing the cost of repairs.
“At a time when homes are getting older and more expensive to maintain, many homeowners are not ready when it comes to understanding and budgeting for the true cost of repairs and maintenance,” Howse said.
How to make a home improvement budget
Buying and owning a home is a big investment, so you want to make sure it stays in tip-top shape. The best way to do that is to intentionally set aside an emergency fund for home maintenance so that you are not forced to come up with funds for no reason. There are a few guidelines you can follow to achieve your goals for success.
A general rule of thumb is to put aside between 1% and 4% of your home’s value each year. For example, if your home is worth $350,000, you can aim to save between $3,500 and $14,000 a year. Another way to create a budget is to save at least $1 per square foot of your home. If your home is 4,000 square feet, for example, you could save $4,000 a year (or more, if your budget allows).
How much money you should have in your maintenance fund will be determined by the age and condition of the building: the older and higher the home, the more you should expect to spend on repairs.
Setting aside several thousand dollars at once for a maintenance budget may seem daunting, but don’t let those numbers discourage you. Figure out how much you can comfortably contribute each month and put it into a dedicated savings account (or an individual bucket within the main account).
As with all savings, anything is better than nothing, and the more you save, the more you can let your money work for you by sitting in a high-yielding interest savings account or money market fund until you need it. The sooner you start saving, the bigger your emergency fund will be.
Finally, it helps to know which expensive repairs you may need to plan for. According to Synchrony, a leaky or storm-damaged roof costs an average of $11,373 to repair, followed by HVAC system breakdowns ($8,219) and burst or leaking pipes ($4,284). Once they are fixed, you don’t have to worry about them again for a while, giving you time to replenish your savings.
The good news is that once you’ve saved up enough money to pay for a major renovation, you can adjust your savings strategy to a smaller one. Doing a little homework to research the typical costs of general maintenance (and reviewing your estimates every year or so) can give you a good idea of how much you’re prepared for.
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