Our homes can be as fragile as they can be, especially if they’re relatively old. They can depreciate significantly throughout the years, and no one wants that depreciation in their home if they’re planning to sell it in the future. So it’s an investment option and one that should be maintained if we want to get the most out of it.
Investments take time and money. It’ll take a sizable chunk of your monthly income, but it’ll be worth it in the end. Your home can be an excellent investment in the future, enough for your retirement. But before anything else, you’ll need to maintain it the best way you can.
There is an average for every expense, and you should use it as a benchmarking tool for whatever expenses you have. In this case, we will look into the average expenditure Americans make when repairing their home annually.
Currently, the average household spends about $3,000 on annual maintenance. That’s a significant chunk of your income. However, your spending can depend on the condition and age of your home. A brand new home might not even require annual maintenance. Experts believe that this is the main advantage of purchasing a new home. You can avoid yearly maintenance for about five years by buying a new home. That’s about $15,000 in savings.
However, maintenance is never a choice. It’s a necessity. There will always be something that needs repair in your home, and it doesn’t matter if it’s brand new or not. Because of this, you should always prepare a budget for home maintenance and repairs.
A Rule in Financing Repairs
Many Americans struggle to get their home fixed simply because they don’t have the funds. Some families tend to do the patch-up method: fix whatever’s in their budget and leave the rest for next year. This option isn’t good in the long run because you’ll be burning through your budget while not completely repairing your home.
The rule of thumb in financing repairs is to save at least 1% of your home’s overall cost every year. So if you have a $300,000 home, then you’ll have to save $3,000 mainly for home repairs yearly. This is even if you’re not planning to do any repairs. There’s also the square-footage rule, which is to save $1 for every square foot of your home. So if you have a 500 square-meter home, then you’ll have to save $500 annually on repairs.
The 1% rule is the most predominant and effective way for home repairs, simply because you can put a decent chunk of it into your savings if you don’t need it.
Ways to Finance the Repair of Your Home
As stated earlier, saving at least 1% of your home’s overall cost is one of the best ways to finance your annual home maintenance. However, what if you don’t need to maintain your home this year? You can then put it into a high-yield savings account or even an Individual Retirement Account (IRA).
A high-yield savings account yields a modest 0.60% yield, while IRAs tend to have an average annual return of 4%. IRAs might be attractive but remember. You don’t have access to that until you’ve reached a certain age, making it hard to utilize it for home repairs. However, it’s great for overhauling your home once you’ve reached that age. But for annual home repairs, put it into your high-yield savings account instead.
Let’s say that a decent chunk of your home requires repair real fast. This can be related to a plumbing issue, or maybe a piece of the foundation fell off. For this kind of situation, you’re going to need to refinance your mortgage.
Refinancing your mortgage is the act of paying your outstanding accounts so you can get a new loan. A part of this new loan is a cash-out refinancing which gives you your overall equity. Some of the best home loan lenders can give you a good deal on your refinanced mortgage. So make sure to seek them whenever you can. Make sure that you also lessen your overall interest rate in the process.
A credit card is another way to get the necessary funds to maintain your home. However, beware. Credit cards have higher interest rates than mortgages. So if you have to make extensive repairs, ensure that you refinance your mortgage instead. It’ll be much cheaper than utilizing your credit card.
Lastly, some government-related programs can help you with home maintenance. For example, the FHA Title-1 loan can give you $25,000 for home repair at a minimal interest rate. It’s worth applying for it if you don’t have any other option.
So here are ways you finance your home’s maintenance costs. Always save up or prepare for a loan for big repairs because you’ll never know when you’re going to need it.