Expensive home repairs can come unexpectedly and really put a dent into your budget. Being financially prepared for expensive home repairs can help you to find the balance you need.
Home ownership is a great investment but like any investment, you have to nurture it and care for it to ensure get the ROI you deserve. For most Americans, their home is the largest single investment they will ever make. Following some simple guidelines will ensure that you are prepared for expensive home repairs to keep your investment growing.
How Do Most People Pay For Expensive Home Repairs?
It is estimated that about 25% of American families have $0 savings. The families that do have savings have about $3800 in savings. That means when expensive home repairs are necessary, most Americans turn to credit to pay for them.
If you are a homeowner in the latter group that has about $3,800 in savings, a visit from a residential HVAC contractor to replace your faulty system will wipe that right out and then some. Unfortunately, when you find yourself in a situation that your home needs expensive home repairs, and you do not have the money saved, you have little choice but to finance the repairs.
Luckily most reputable expensive home repairs contractors offer in house financing so you do not have to reach for your credit cards and max them out. For example, your roof needs to be replaced, new roof installation can cost upwards of $10,000 depending on the size of your home. Most people do not have that type of cash on hand.
Most roofing contractor companies will offer financing packages for a new roof. When financing is your only option, of course, you will need to take that option, because the risk to your home is too great not to take it, but you can still be cautious.
Paying for expensive home repairs, even when you are financing them, still needs to be evaluated for the best financing options. Make sure you understand the terms of the agreement. How much interest will you pay? How long is the term? Is your house being used as collateral? Is this a small second mortgage that you are putting on your house? It is critical that you read the small print and really understand how this financing is going to work.
Many homeowners panic when they need expensive home repairs, and because they are not financially prepared for them, make quick decisions about financing the repairs and find themselves in a bind down the road. It is not unusual to find that quick financing options actually put a lien on your property in some cases.
Before you sign on the dotted line and agree to finance that new sewer line installation with the plumbing company consider all your options including:
- Going to your mortgage company for a small loan. If you have owned your home for a few years, you may have built up enough equity to tap into to get the repairs done. You likely will be offered a better rate, and easier terms if you take this route.
- Go to your personal bank. If you have yet to build enough equity, try getting a personal loan for the bank that you do business with. A personal loan may also offer a lower interest rate and easier terms, and will not put a lien on your property.
- Raise the cash by selling something. If you have any big-ticket items that you really do not get any use out of, sell it to raise the money for the expensive home repairs. It may be a little painful to part with it, but you will be glad you do not have to make payments for the next 5 years.
It is critical to get certain expensive home repairs done to protect your home, keep your family safe, and of course, protect your way of life, but you do not want to panic and take the first financial option that comes along. Evaluating your options, and even getting creative with how you will pay for the repairs, can save you a ton of money, a lot of stress, and make sure you do not find yourself in a bind financially down the road.
Shopping around for the best financing option can be as simple as calling another contractor and comparing prices. A lot of homeowners make the mistake of thinking well company B is only X dollars more expensive than company A, I might as well just go with them because I am financing it anyway. That is a big mistake.
You want to call in at least three contractors that specialize in the type of repairs that you need, then compare pricing, financing options, and of course, their reputation. A few extra hundred dollars makes a big difference when you are financing the project.
One of the things on the list above is the least favorite way to financing expensive home repairs, but it is the best way to do it in the absence of savings. Selling off a big-ticket item like that ride on lawnmower you purchased to cut you are less than a quarter-acre property. It may be painful but you can push a lawnmower around for a while until you have the money saved to buy a new ride on. Selling something to raise the cash or at least a majority of the cash may be uncomfortable now, but the amount of money you will save on interest charges can be substantial.
If you are in the category of American families that has a small nest egg sitting in savings use that. Interest is typically very low on traditional savings accounts. The amount of interest that you will earn on that money is far less than the amount of interest you will have to pay on financing.
Once you have paid for the repairs, it is time to get serious about your budget, and saving for emergencies in the future. While nothing in life is carved in stone, you can almost guarantee that your home will need future expensive home repairs.
The Single Best Way to Avoid Expensive Home Repairs
How can you avoid those expensive home repairs? The best way to avoid costly home repair bills is to do some preventive maintenance, and fix things as soon as needed. The cost of home repairs is often driven up by neglect.
For example, after a storm you notice that there are what appear to be roofing material in the yard. Calling in a roofing company immediately is an important step. There are two reasons that you want to call that roofer.
First, any roofing damage, will get worse with time, which means the cost of the repair will start to climb. You can minimize damage by addressing the problem early on and you can also save money. Second, if the roof was damaged in a storm, then it can fall under storm damage services, which may be covered by your homeowner’s insurance policy, which means you won’t have to pay for the repairs, other than the deductible. Acting quickly to get repairs done can be the best way to keep more money in your pocket.
Preventive maintenance is another great way to avoid expensive home repairs. Here are some things you should be doing regularly to care for your home:
- Replace your HVAC filters and clean around the unit outside. One of the most expensive home repairs is replacing your HVAC system, with a little maintenance you can extend the life of your system and avoid costly breakdowns. Change your filters in your exchange about once a month. Also, contract with an HVAC specialist to come out and do tune-ups of your system at least annually. Clean around outdoor units to remove debris to ensure proper airflow.
- Inspect plumbing indoors and out periodically. Outdoor plumbing needs to be protected from the elements. Cover outdoor spigots in the fall with insulation.
- Watch what you put down the drains. A lot of plumbing damages are related to what is getting flushed down the toilet and the drains. Be careful with your plumbing system. Address clogs and leaks immediately.
- Learn as much as you can about the systems in your home. Being able to make simple repairs as soon as they are needed as a DIY project is a great way to save money. You do not have to go to welding school to learn how to make minor repairs, of course, you can, but developing skills that will help you better care for your home does not have to be extreme.
- Clean gutters twice a year. Gutters not only keep your roof from undue wear and tear, it keeps your foundation safe. Clogged gutters do not perform as they should, and can fail.
Preventive maintenance is something every homeowner should become proficient at. If you lack confidence in your skillset call in a professional for the first maintenance and ask questions so you can learn how to DIY it.
Another preventive maintenance activity that you should add to the above list is pest control. You should contact a pest control professional to manage this. Pests can cause havoc in your home, and a lot of damage. Pests are not only a nuisance but they can be dangerous, especially flying stinging pests.
A hornet exterminator can take care of most flying insect threats, and a wide range of other pest problems. Pest control is an important part of home maintenance.
With a little work you can save a lot of money, and worry less about expensive home repairs. Investing in small repairs now will also save you money.
The Balance Between Wants and Needs
One of the biggest mistakes homeowners make when it comes to expensive home repairs is not being able to distinguish between a necessary repair and a want. For example, new engineered stone countertops would be lovely to have, but that is not a necessary repair. A necessary repair is something that affects the safety of your home.
For example, garage door repair service is a necessity. Why? If your garage door is not functioning properly it can become a hazard and cause other problems for the structure. Of course, it can also be unsafe for your family.
If you do not have the money to make upgrades to your home, you cannot categorize them as an absolute necessity that is worth taking on debt for. If you want those new countertops, then save for them, wait until you have at least part of the money to invest.
You have to conserve your available credit and savings for the necessary expensive home repairs. You do not want to finance those new countertops and deplete your credit, only to find that the roof is where you should have focused.
Don’t Pay Out of Pocket For Things That the Insurance Company May Cover
A lot of homeowners make the mistake of absorbing costs that they do not necessarily have to absorb. Most people realize that a fire damage claim will be covered by their homeowners, but do not consider that water heater breakdown damages can also be covered.
Before you reach in your pocket to pay for expensive home repairs, call the insurance company and just ask if it is covered. The repairs may be covered by your homeowners and it may be worth putting in a claim for it. Don’t just assume it is not covered.
What Can You Do Today to Help Keep Costs Under Control in the Future
Start an emergency fund. Even if you can only contribute $50 a month to it, at least it is something. Moving forward in a positive direction and taking the steps that you need to build an emergency nest egg will help you sleep better at night, and ultimately be prepared for anything that comes your way.
It is important to be financially prepared. You want to be able to care for your home the right way and protect your investment while growing your equity. Start your fund today, and have the peace of mind that you can manage those expensive home repairs.