Owning a home does wonders for one’s self-esteem. It’s an affirmation of all the hard work you’ve been doing. There’s nothing like going home to a house that you actually own. Regardless of how big or small it is, you are still king or queen of your own castle. On the flip side, owning a home is also a big responsibility as well. Many first-time buyers get too tied up with the monthly mortgage and they fail to take into account some potential expenses—repairs and maintenance.
Rule of Thumb in Home Repair Budget
You may think that repairs or maintenance costs are not an issue if you are buying a relatively new house. But all it takes is some freak weather to flood the basement or put a hole in that roof, or an electrical issue that requires you to rewire the whole house. And suddenly, you find yourself in the red.
So how much should you allocate of your monthly budget for home repairs?
If you have researched this, you may have come across the magic 1% number. For example, if your house is worth $400,000 (which typically means substantial floor area) the annual budget for repair and maintenance should be $4,000.
$4,000 ÷ 12 months = $333.00 per month.
However, there’s a growing school of thought that 1% is too low.
In fact, many feel that the budget for repairs and maintenance costs should be around 3.5% to 4%. This number will cover even major damage.
Let’s go back to our $400,000 example. At 4%, your annual budget would be $16,000.
$16,000 ÷ 12 months = $1,333 per month.
Location, Location, Location
Remember the real estate rule about the location? This will be factored into your budget as well. Now, if you are living in flood-prone areas like South Carolina, Georgia, Virginia or Massachusetts, then you would be wise to bump the repair and maintenance cost by an additional 20%.
$1,333 x 0.20 = $266 + $1,333 = $1,599 per month.
Highlands, Glades and Desoto in Florida, Houston and Walker in Texas, and Kemper and Wilkinson in Mississippi are areas vulnerable to hurricanes, so you should take that into consideration. If you live in areas on the path of a rampaging tornado, well, you better have good insurance.
These numbers are not meant to dissuade you from trying to buy your own home; far from it. The need to have extra cash for repairs is to ensure that you keep the home that you worked hard to buy. It’s a good idea to always be prepared for any emergency.
The trick is not to think of the home repair budget as an expense, but rather an investment. If by lucky chance, you do not dip into your emergency funds this year, then you can use it for the annual budget next year, and so on and so forth. Better to be safe than sorry.