Owning a home is a great investment and incredibly rewarding in many ways. The other side of the coin is when an expensive repair to your home is needed, which means homeownership can occasionally be a huge expense as well. When that bill for $10,000 for comes out of nowhere, it’s not optional, you’ll have to come up with the funds to fix whatever has broken. To make sure this inevitable expense hurts your wallet a little less, let’s talk about how to financially prepare for inevitable home repairs.
Doesn’t homeowners insurance cover this?
Let’s address a common misconception: Your homeowner’s insurance is almost certainly not where you’ll look to pay for the kinds of home repairs we’re talking about. Your homeowner’s insurance is a vital protection for your home, but it is there for when some kind of event damages your home itself, like a fire or vandalism. It doesn’t typically cover any damages that arise from wear and tear, or simply the passage of time.
Even if the home repair expenses come from a loss covered by your insurance, there is also the issue the deductibles. Homeowner’s insurance isn’t necessarily like car insurance, where your deductible is a flat $500 or $1,000. Many policies have deductible amounts (especially for the most expensive of repairs, like roof damage from a storm) of “1%”, which means you’ll pay 1% of your home’s total insured value for repairs.
Bottom line: If you have $400,000 of coverage on your home, that means your deductible will be $4,000. This can be an unpleasant surprise for people who are new to navigating homeowner’s insurance claims, so definitely check your own policy if you have one to verify if you have any deductibles like this. If you do, an emergency fund is still a good idea just to cover the out of pocket costs!
What about a home warranty?
Another common idea we hear: “I’ll just get a home warranty, and use that to pay for it when something expensive breaks.” In reality, home warranties can help cover certain repairs, but coverage limits, exclusions, service fees, and claim processes vary widely. Before purchasing a home warranty, review the contract carefully to understand what is and isn’t covered. Often, you’re going to be better off keeping those monthly premiums for yourself and building your own dedicated safety net savings account.
How much do you need to actually save?
So, how much should you actually save? A solid rule of thumb is to set aside one to four percent of your home’s total value every single year. If your house is worth $300,000, aim to stash away $3,000 to $12,000 annually. If that feels a bit steep right out of the gate, start with a baseline emergency fund of a few thousand dollars to at least cover smaller expenses like replacing an appliance. Remember – The home repairs that every homeowner encounters at some point are simply going to be expensive, there’s no way around it. And the repairs usually aren’t something that can be deferred!
Where you put this money matters just as much as saving it. You need this cash completely liquid and accessible, but it should still earn its keep. Look into specialized savings products, like high yield savings accounts. Many banks offer limited Annual Percentage Yields, and you’ll often find significantly better APYs by opening a savings account at a Credit Union. As non profits, credit unions focus on delivering the best experience for their members, making them an excellent additional alternative to explore over banks. Using one can help your repair fund grows much faster while it sits there waiting for an emergency.
What exactly are you saving for?
Here is a quick breakdown of common household failures, what they cost, and how often they strike. (Disclaimer – prices given are examples from a local market, they are for illustration purposes only as your costs will vary)
The Water Heater
• Frequency: Every 8 to 12 years.
• Cost: $800 to $1,500. These appliances will do their job out of sight and silently for a decade and then fail completely, all at once. This is an example of a repair you can’t realistically defer for long.
HVAC System
• Frequency: Every 10 to 15 years (longer if you keep up with maintenance).
• Cost: $5,000 to $10,000. Air conditioners and furnaces only break during the most extreme weather of the year. It is practically a law of physics. Having cash ready means you do not have to freeze or melt while waiting on loan approvals.
Roof Repairs or Replacement
• Frequency: Every 20 to 25 years.
• Cost: $6,000 to $15,000. Replacing a roof entirely will cost many thousands of dollars. Even isolated leak repairs from a bad storm can easily cost $500 to $1,000
Saving thousands of extra dollars per year for a theoretical home repair can feel very daunting, but the numbers don’t lie: Things eventually break, and replacing them can be expensive. With a little preparation beforehand, you can ensure that you have the resources necessary to handle urgent repairs immediately without breaking the bank.
