One of the major pitfalls that many homeowners fall into is not saving enough for repairs and upkeep on their homes. According to a recent article on Money.com, many people know they need to budget for repairs, but severely underestimate the amount they should be budgeting.
How much should you save?
According to Money.com, you should save 1-4% of your home’s value for maintenance. Regional variances impact how much you need to save. This means that if you own a $200,000 home, you need to save between $2,000-$8,000 for repairs and maintenance. This fund is not necessarily for upgrades or improvements. This fund is for things like roof repair/replacement, upkeep of HVAC, plumbing repairs, electrical issues, drainage and foundation repairs, appliance replacement, and the various other needs just to keep your home in good repair. This fund will also provide needed relief when something catastrophic happens, since insurance rarely covers everything.
The cost of not saving
For people who aren’t saving, or not saving enough, the costs are significant. For these homeowners, they often find themselves delaying needed maintenance because they do not have the needed reserves. Unfortunately, this can have devastating circumstances. Neglected maintenance never resolves itself, and the situation will just continue to deteriorate until what could have been a relatively inexpensive repair has become a threat to the safety of the home. It also severely impacts the property value at sale, with homeowners often surprised when their home is valued much lower than neighboring properties.
A special note for prospective new homeowners
In our experience, there is another situation that new homeowners are particularly vulnerable to: maxing out the pre-approval amount on their mortgage. While the bank is looking at the maximum amount of housing payment you can be approved for, it’s up to you to determine if that amount is actually affordable. You should definitely factor in monthly costs like: maintenance and repairs, utilities, child care, and any other needs, adjusting your expectations accordingly. If you max out the pre-approval amount, you may find yourself struggling to meet your other non-debt-related needs and are more likely to let home repairs lapse.
Its pays to understand the actual costs of home ownership BEFORE you buy. It’s so much more than simply making your monthly mortgage payment. We want our clients to be successful homeowners that reap the rewards of their investment, but you must have the resources to maintain that investment.
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