As a renter, you weren’t responsible for performing routine home maintenance, let alone dealing with repairs and emergencies. As a homeowner, however, it’s essential that you are financially prepared to handle each of these unavoidable events. While facing repairs and emergency expenses will still be stressful, being prepared for them will ensure that your financial position isn’t threatened by the unexpected.
As you read through our recommendations, keep in mind that they are developed with the average expenses faced by a homeowner in the US. If you have purchased a new home, your repair fund will not need to be as large. If you’ve purchased a home that is over 30 years old, plan for roof, plumbing, window, HVAC, and electrical issues that are likely to occur with age.
How Much Money Should You Have Saved Up?
For most homeowners, the standard recommendation is to plan to spend 1% of your home’s value each year. For example, if your home is valued at $450,000, you should plan to spend on average $4,500 per year on maintenance and repairs.
Some years, you will spend far less than this amount. However, one significant repair or upgrade could eat up $10k or more. Therefore, we recommend saving continuously, even if several years pass without your having to dip into your fund.
How Much Money do Americans Tend to Have Saved Up?
In an ideal world, each of us would have six months’ salary on-hand at all times to cover unexpected events. Loss of one’s job, a debilitating health condition, divorce, or the need to purchase a new vehicle are all challenges that are significantly easier when one has the money to fend off debt.
In reality, though, the Federal Reserve reports that US residents struggle to save enough to cover even small, unexpected expenses. Before purchasing a home, Parks Realty recommends that individuals have the ability to continue to save despite the additional costs incurred at closing and during the move.
If you do encounter an emergency expense that can’t be delayed, and you have not been able to save up enough money to pay for the repair outright, you do have options.
Clearly, if you are facing a true emergency, you likely don’t have the ability to submit an insurance claim, then wait for it to be processed and paid before you perform repairs. Even if you can wait, your homeowner’s insurance policy still may not cover the type of repair your home needs.
If you can wait, and your repair is covered, you will still be responsible for covering your deductible. Furthermore, your insurance rates will go up once your claim has been paid out, because your insurance company will assume that you are more likely to file claims in the future.
Community Development Programs
These programs are operated by your local government, banks, and credit unions. HUD is one example of a type of Community Development Block Grant that will assist homeowners with emergency repair grants or loans.
These programs are intended for senior citizens, homeowners with disabilities, and homeowners who earn lower incomes. If you believe you fall into one of these categories, check with your local housing office to learn more about a program that might be able to help.
If your home was damaged by a disaster (ex.: flood, fire, hurricane, or earthquake), FEMA or the Red Cross may offer funds to assist you with your repairs. If your home’s damage is not covered by your homeowner’s insurance, it’s much more likely that the repairs will fall under FEMA’s funding umbrella.
Keep in mind, though, that such disaster relief funding is only dispensed for repairs related to safety and sanitary living conditions. Furniture, flooring, and surface damage to walls will not be covered.
Additional Government Assistance
There are a few other programs that help borrowers purchase or refinance a home. The funds required for expected repairs or upgrades is included in the loan. Explore FHA 203(k) and Limited 203(k) programs, both of which are offered through the Title 1 Property Improvement Loan Program under the Housing and Urban Development Department. Each loan is insured by the FHA and is designed to assist owners who have very little equity in their homes.
If you are fortunate enough to have equity in your home, you may be eligible for a Home Equity Line of Credit, or HELOC. This type of loan allows you to borrow money against your home’s value. Because these loans are levied against your existing equity, we recommend using them sparingly, investing all money borrowed back into your home wisely, and repaying your HELOC as quickly as possible.
Home Equity Loan
A home equity loan is also secured using your existing home equity. However, unlike a HELOC, this type of loan is issued in one lump sum instead of an ongoing line of credit. As a result, your home equity loan will carry a fixed interest rate.
Your home will serve as collateral for your home equity loan, so you’ll need no less than 15 – 20% equity. As such, it’s vital that you repay this loan on time.
We do not recommend a personal loan as a good solution for emergency repair costs. Unfortunately, some homeowners find themselves unable to take advantage of an alternative source of funding.
If a personal loan is your only option, you will likely be able to qualify and access funding promptly—as soon as 24 hours after your approval.
Another last resort is a credit card. Try to secure a card that offers a 0% APR period after opening it. We have been able to find introductory periods that allow 0% APR for any purchases made within the first six months! In this way, you will be able to pay for your emergency repair, then repay it on a manageable schedule without worrying about a high interest rate.