How Much Should You Budget For Home Maintenance?
Buying a house may seem like a more financial-savvy choice than renting, since you’re purchasing an investment. In many cases, your mortgage may likely even be less than rent in your area. However, don’t forget the phantom costs of home ownership, which include maintenance.
Aim to budget between one and four percent of your home’s value for annual maintenance. If your home is brand new, save one to two percent. If you purchase an older home, save three percent, and if you get a fixer-upper, save at least four percent. Take the total and divide by 12 for your monthly maintenance fund.
Budgeting for home maintenance may seem tricky since you can't predict what might happen, like a busted water heater or a roof leak. However, saving nothing is a big mistake. It’s better to create a house fund that can help you meet expected and unexpected repairs and upkeep.
Things To Consider When Saving For Home Maintenance
Trying to figure out how much you should save for house repairs may seem impossible. After all, you don’t know what kind of repairs you need until something breaks. However, this isn’t entirely true.
Regular Maintenance And Upkeep
Every home needs regular maintenance, like lawn care, paint touch-ups, and HVAC service. The National Association of Home Builders (NAHB) estimates home maintenance costs to be $950 annually. The exact prices for regular upkeep vary depending on where you live, the age and condition of your home, and amenities or special features (like a pool or cedar-shake roof).
Unexpected (Expected) Repairs
In terms of things breaking, sure, you can’t always foresee when something will happen. The thing you can count on, though, is that it’s going to happen.
It’s a pretty safe bet that an appliance will go bust or a pipe will leak at some point. It would be more unlikely for everything to remain in tip-top condition.
Insurance Deductibles
You also need to consider your insurance deductibles. If your home floods or a hurricane drops a tree on your house, you may rely on your flood or wind and hail insurance to handle the costs. But don’t forget about the $1,000 or $10,000 deductibles you need to pony up first.
Special Features
If your home has special amenities or features, then you need to prepare to spend more on maintenance. For example, if you have a pool, you’re going to spend more on upkeep than someone with a similar home but no pool.
How To Decide Your Home Maintenance Budget
With routine maintenance, emergency repairs, and your insurance deductible in mind, you can start deciding the right amount for your house budget. It’s not possible to give a blanket number to everyone, like $5,000 a year, because not everyone’s situation is the same.
If you have a newly built house worth $200,000 and you live in a low-cost living area, you won’t need as much as someone who buys a $600,000 fixer-upper outside of New York City.
Therefore, it’s helpful to use formulas that take certain factors into account to determine your home maintenance costs. Here are two suggestions that can help you come up with the right number for your home.
Use A Percentage Of Your Monthly Mortgage
Author, entrepreneur, and financial counselor, Ramit Sethi, recommends adding 50 percent of your monthly mortgage payment to account for all of your home’s phantom costs. This is an easy way to do some quick math, so you’re prepared for the inevitable. These invisible costs include things like property taxes, insurance, repairs, maintenance, etc.
For example, if your monthly mortgage is $2,000, take 50 percent of that. Therefore, you would have another $1,000 per month going to additional housing costs. If your mortgage payment includes taxes and insurance because of escrow, you could potentially lower the percentage to 40 percent or 30 percent (keeping the age and condition of your home in mind).
This percentage factors in multiple items, but you can still use it to determine your maintenance costs. You should know what your insurance and taxes are and you likely have a clear idea of what your utilities cost. Therefore, after deducting these items from the total, the remaining figure should go toward home maintenance.
Using the same example, let’s say your insurance costs $200 per month and taxes are $90. You pay roughly $250 per month in utilities. If you subtract $540 from $1,000, you’re left with $460. You should put $460 each month into a maintenance fund (or $5,520 a year).
The overall takeaway from Sethi’s numbers is that your home costs you a lot more than the principal and interest payments you make each month. Before you purchase, run your numbers considering these extra costs.
Calculate One To Four Percent of Your Home’s Value
A popular, more common way to decide on your home maintenance costs is the percentage rule that considers your home’s value. Basically, you take one to four percent of the value of your home and divide it by 12 to get your monthly maintenance cost.
If your house is relatively new and in great condition, you can aim closer to the one percent figure. As your home ages, you can bump up your percentage to two or three percent, etc.
However, if your home is old or it has existing issues, you may prefer to start in the two to three percent range. If you purchase a fixer-upper, you’re best saving at least four percent of your home’s value (maybe even more).
Here’s an example. You buy a house valued at $400,000 and it is only five years old and in good condition. You decide to devote 1.5 percent of the value to home maintenance, which is $6,000 (400,000 x .015). However, if the home is 50 years old, you may be more comfortable saving 3 percent each year for maintenance, which would be $12,000.
Run the numbers for each of these suggestions, the percentage of value and 50 percent of the mortgage payment. You may discover that they’re pretty close. Use what you know about your unique situation and your home to decide your final figure.
Get Familiar With The Cost Of House Repairs
Another important determinant in deciding on how much you need to save for home maintenance is understanding repair costs. For example, if you know your water heater is on its last legs, research how much a new one costs and plan accordingly.
Other things, like routine HVAC maintenance, occur every year (or should). For example, you should have your AC serviced once before summer and once before winter. If your typical service costs $100, you know that this regular task will be at least $200 a year.
Do you hire a lawn service to take care of the grass and garden? If so, think about what they charge. Is it $150 a month or $400?
A basic appliance repair can run you $120 to over $400. Before spending money on repairs, consider the cost of replacement. If the repair will cost you more than 50 percent of a new appliance, replace it instead.
You can find average costs for many common maintenance tasks and repairs with a handy Google search or consulting sites like Neighborly or Angi.
Having A Home Maintenance Savings Plan
As we touched on before, the thing about home ownership is it likes to surprise you. You know there are certain things you need to do every month, year, and so on. You also know you have deductibles to meet if a disaster strikes. However, other things spring up unexpectedly.
Therefore, once you decide how much you want to allocate to home maintenance each year, divide the number by 12. If your annual amount is $12,000, you would save $1,000 monthly.
Each month, put that amount in a high-yield savings account and let it sit and grow until needed. If you don’t need to use a lot of your house funds for one year, keep it building for the inevitable emergency.
Remember, you may not always feel like you need the money for house repairs when things are going well. But it’s unwise to think nothing will ever happen. Plus, one of the greatest things a home maintenance plan and budget gives you is peace of mind.
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Stacy Randall is a wife, mother, and freelance writer from NOLA that has always had a love for DIY projects, home organization, and making spaces beautiful. Together with her husband, she has been spending the last several years lovingly renovating her grandparent's former home, making it their own and learning a lot about life along the way.
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