(NerdWallet) – If you’re a homeowner and haven’t faced a big repair bill yet, wait. Even in well-maintained homes, things wear out or break.
Budgeting for these unavoidable bills isn’t always easy. A commonly cited rule of thumb — to save 1% to 4% of your home’s value each year for maintenance and repairs — can give homeowners sticker shock as real estate prices soar.
Kate Meilitz, a certified financial advisor, recently bought a home in Olympia, Washington, where the median list price is $540,000, according to Realtor.com. Saving 1% of that, or $5,400, is a stretch for many homeowners, says Mielitz, who advises low- to moderate-income clients. Saving 4% means putting aside $21,600 a year.
“I want to cry looking at that number,” Meilitz says.
Cost of house depends on age, condition, climate
Rules of thumb have limited value, because how much you spend depends on the age of your home, the materials used and local weather patterns, among other factors, says John Wessling, president of the American Society of Home Inspectors.
For example, a laminated-shingle roof in St. Louis, where Wessling lives, lasts 35 to 40 years. But he says it can survive less than 15 years under Florida’s harsh sun. Weather extremes can also wreak havoc on homes.
Wessling says how well you maintain your home has a big impact. Many homeowners don’t notice window caulking, which dries and splits, but water seepage can cause immense damage.
“A $12 or $15 repair could cost $15,000 or $20,000 to rebuild that wall under the window,” Wessling says.
According to the latest American Housing Survey conducted by the US Census Bureau, homeowners spent an average of $950 – or 0.6% of the home’s value – on home maintenance in 2019. But the amounts vary considerably based on household sizes and age, among other factors. For example, the percentage of home value spent on maintenance rose from 0.2% for homes built in the 2010s to 0.8% for homes built before 1960.
Deciding how much to set aside
People who prefer to hire others expect to spend more than do-it-yourselfers, says Mischa Fischer, chief economist at Angie, a home service referral website. Angie’s survey of 2,934 homeowners who paid for home improvements last year found they spent an average of $3,018 on home maintenance, says Fisher. That amount is usually between 0.5% and 1% of their home’s value. In addition, homeowners spent an average of $2,321 on emergency repairs.
Fisher recommends homeowners set aside up to 5% of their income for home maintenance and $10,000 to cover emergency repairs and system replacements.
Another approach is to save based on the remaining life of various components of your home, including the roof, heating and cooling systems, hot water heaters and appliances.
You can search online for charts and articles that estimate how long components typically last, Wessling says. Similar searches can give you an idea of replacement costs.
Alternatively, hire a home inspector to conduct a home maintenance inspection, Wessling says. As with pre-purchase home inspections, a maintenance inspection can estimate when various home systems need to be replaced. Wessling says he typically charges $400 to $500 for an inspection.
Let’s say you have a 5-year-old air conditioning system, which typically has a lifespan of 15 to 20 years, says Wessling. If the new system costs $4,000, you can save $400 a year to cover it. You can add a candy factor to account for future inflation, which is, unfortunately, unpredictable. Wessling suggests adding 20% to anticipated expenses and an additional $100 a year to your savings.
Other ways to prepare household expenses
Consider setting up a home equity loan that you can tap into if repair bills exceed your savings. These lines of credit are less expensive than many alternatives like credit cards. Make sure you can make the payments: If you can’t, lenders can foreclose on your home.
People struggling to save can consider purchasing a home warranty, which can cover repairs and replacements for home systems and appliances, Militz says. Her current warranty costs about $800 a year, but service visits to fix any problem cost $75 each.
Such contracts have their disadvantages: the consumer does not control the repairer, for example, and depends on the terms of the policy. Consumer Reports recommends that people “self-insure” by putting money they spend on home insurance into a savings account dedicated to home repairs and replacements.
But Meilitz, who has bought home warranties since 2008, says the contracts give him peace of mind at a reasonable cost.
“It’s kind of like car insurance. Hopefully you won’t need it, but if you do you’ve got it,” Militz says.
Based on Angie’s analysis of surveys of 6,400 consumers between October 4 and 7, 2021. Statistics on home maintenance and repair costs are based on responses from 2,934 homeowners and are a nationally representative sample of the home spending population. .