Ever since we became homeowners we felt the homeowners pinch. before moving in we had to make a few repair and improvements as per the suggestions from the inspector. we installed hurricane shutters at the main door, we replaced one door due to termite infestation. Within a year we had a leak and spent $2500 for the roof repair. As of writing this story we detected moist carpet in my office room.
The constant work like these go on, our home is 1992 built and this is the time we expect to pick up few repair bills. I was thinking about some good ways to handle increasing amount of bills towards our home repair. Then I read about home repair fund.
I talked about having and emergency fund which is must for every family. And, since your home is such a major investment and a valuable asset, it’s also smart to be prepared to afford regular maintenance and surprise repairs, without incurring debt.
I suggest every homeowner must have an emergency home repair fund built.
Size of the emergency home repair fund
Most financial planners suggest homeowners should build up an emergency home repair fund close to $5,000. When you have that money aside, you can handle a sudden expense, such as roof damage, broken window or a new furnace installation, without tapping into home equity loan.
Now, a re-roofing may cost more than $20,000 and if you can’t pay it with cash or borrow from someone, you need to apply for a home equity loan or a personal loan, whichever gives you lower interest rate. I am not talking about that kind of expenses.
This is not about home improvement fund either, for that, you can set aside money as per your savings goals.
Like, I am saving for retirement (401K and IRA), Son’s college education (few after-tax index funds) and home improvement (another set of index funds).
Now for home repair fund, how much you can set aside should depend on the condition your home is in and the assessed value of your home. Of course, your income and other saving goals are important factors too. Some planners suggest that one should save up to 1% of their home value.
If you have an older home, you may consider saving up to 2% of home value. A quick look at Zillow shall reveal your home value.
When emergency home repairs arise
To gauge your home’s current condition, hire a reputable home inspector. Ask him to list all things that are necessary to fix and things that are good to be fixed.
Then get an estimate of the work to be done. Most contractors will give you free estimates. now list the projects in order of the estimated cost.
When money is tight, you don’t have to do a big project in its entirety. For example, you can have new flooring installed one area at a time.
If you have a tight budget and haven’t funded the repair fund fully, postpone the “good to have” projects and focus on necessary maintenance and repairs. A leaky roof can’t wait where as dirty carpet can wait another month or two, once you wash it thoroughly.
There are some situations where you can’t really wait.
A plumbing emergency can happen at any time a faulty water or sewage line can cause havoc to your flooring and furniture. Be prepared to shell out the money in a day’s notice. Try to pay with a check that’s dated after a couple of days, just to make sure the money arrives in your checking account before the check in encashed.
Try to pay with a check that’s dated after a couple of days, just to make sure the money arrives in your checking account before the check in encashed.
How to actually build up home repair fund
The easiest way is to build up over a few months. If you planning to save $4,000 based on your need, divide by 12 months and save $330 per month. Stash it away in a savings account from where you can readily transfer to your checking account. Most transfers take around 2-3 days.
By the time contractor cashed in the check, the amount would be ready in your checking account. If you pay the repair cost using a credit card, make sure to repay the amount as soon as you have the money in your checking account.
The best way not to forget the monthly swaps is to set up the auto-transfer, so you automatically transfer a regular amount from checking to savings every month. Make sure to set up the auto pay with a definite end date.
Once you use up the money towards a repair, make sure to replenish the fund over next few months. Let’s say you spent $2,000 for flooring change, then you should again start auto bank transfer to recover the lost $2,000 in next 12 months.
If you have a habit of keeping the emergency money at one place you can do that too. Just add some more money on tops of your emergency fund.
I save my entire emergency fund into three different savings accounts (I love to have multiple bank accounts) and I included home repair money into it.
I also have a home improvement savings goal, we need to modernize the bathrooms and kitchen in our 1992 home. We are saving for it and hopefully, in next couple of year, we can start the work.
Readers, let us know how you handle your emergency home repairs and maintenance.
About the Blogger Hi I am SB, a personal finance enthusiast with a career in software development. I am an immigrant to the USA since 2005, after being born and brought up in India. This 40 something technocrat lives and breathes personal finance whenever he gets time from the day job, job as a husband and a dad
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