When you budget for a new home, you probably think mainly about the cost of the mortgage. But there are some other sneaky costs to think about, like property taxes, HOA fees, and home maintenance and repairs. In fact, budgeting for home maintenance is especially tricky since there is no set amount you can know ahead of time.
Even if the home you buy appears to be in great condition during the inspection, eventually, it will probably develop some expensive issues to fix. Let’s go over how much you need to set aside.
How Much Should You Budget for Home Maintenance and Repairs?
Because it is hard to figure out what to budget for home maintenance and repairs, there is a common rule of thumb people use:
Budget 1% to 4% of the value of your home.
So, for example, say your home’s value is $300,000. You should budget anywhere from $3,000 to $12,000 per year just for maintenance and repair work.
It’s wise to think about how the local cost of housing may impact your home’s value, and make some adjustments.
Like, say you have a $200,000 home in a LCOL area. The same house might be worth $300.000 in a HCOL area.
You may want to use $300,000 instead of $200,000 for your calculations. Even though you are paying less on your mortgage due to your location, that location may not translate to lower maintenance costs.
For starters, the house may still need the same repairs it would if you were living in a higher cost area.
Labor might be less expensive due to your LCOL area. But materials will probably cost about the same, as they will likely be shipped in from elsewhere.
Try to do some research. Figure out how much you might save on labor in your area. You can use that information to decide whether to adjust the amount you budget for maintenance downward to reflect your LCOL area, and by how much.
Maintenance Needs Vary from Year to Year
Something else that is important to understand about home repairs is that the costs can vary dramatically from one year to the next.
Returning to our previous example with the $300,000 house, you can’t expect your repairs each year to add up to $3,000 to $12,000.
There may be years when you spend very little on repairs. On other years, you might spend in this range. And then there will be years you get hit with a very heavy bill, like a $30,000 repair job.
For this reason, you shouldn’t just “reset” every year. Don’t budget $12,000 for repairs, then get to the end of the year with only $1,000 spent on repairs and decide to just spend the $11,000 left over on something else.
If you do that, you’re going to get caught off guard when you do suddenly find yourself having to pay for a massive repair.
Instead, what you should do is save up the “extra” funds you budgeted at the end of each year. Create a separate savings account for them, or just notate in your budget that those funds are intended for home repairs and maintenance.
You can even just do this in a spreadsheet. You can put causes/purposes in one column, and amounts in the next. So, you would just label it “home repairs,” and write the amount next to it so you know what you’ve allocated.
To continue our example, say you set aside $11,000 at the end of the year that you budgeted, but did not spend. Rather than putting that money back into your general budget, you should keep it in its own separate account or pile that you label “repairs.”
Perhaps the next year, you find yourself needing to do $20,000 in repairs. Luckily for you, you not only have the money you are budgeting that year, but the $11,000 from the previous year as well. So, you are able to afford the repairs.
Of course, this system doesn’t always fully compensate when you have a big repair bill. But it can go a long ways toward smoothing out the sudden spikes in repair costs and ensuring you can keep up with your home maintenance needs.
Buy a Home in Ohio
Liberty Capital is based in Columbus, and can help you buy a home or refinance quickly and easily anywhere in Ohio. To get started, please give us a call at (614) 505-0620 to schedule your consultation.
