Liz Weston: How to Create a Realistic Home Renovation Budget

If you’re a homeowner and haven’t been hit with big repair bills yet, just wait. Even in the most well-maintained homes, things will wear out or break.

Budgeting these unavoidable bills isn’t always easy. One oft-cited rule of thumb—saving 1% to 4% of a home’s value annually on maintenance and repairs—may come as sticker shock to owners as real estate prices rise.

Accredited financial advisor Kate Militz recently purchased a home in Olympia, Washington, where the median price is $540,000, according to Realtor.com. Saving even 1% of that, or $5,400, would be difficult for many homeowners, says Melitz, who counsels low- and moderate-income clients. Saving 4% would mean saving $21,600 a year.

“Looking at that number makes me want to cry,” Melitz says.

HOUSE PRICES DEPEND ON AGE, CONDITION, CLIMATE

But rules of thumb are of limited value because the amount you’ll spend often depends on the age of your home, the materials used and the local climate, among other factors, says John Wessling, president of the American Society of Home Inspectors.

For example, a laminated shingle roof can last 35 to 40 years in St. Louis, where Wessling lives. But it can live less than 15 years under the harsh Florida sun, he says. Extreme weather events can also damage homes.

How well you maintain your home can also have a big impact, Wessling says. Many homeowners overlook window seals that dry out and crack, for example, but leaking water can cause tremendous damage.

“What might be a $12 or $15 repair could end up costing $15,000 or $20,000 to rebuild the wall under the window,” Wessling says.

According to the latest U.S. Housing Survey by the U.S. Census Bureau, homeowners spent an average of $950 on home maintenance in 2019 — or 0.6% of the home’s value. But the amounts varied widely based on home size and age, among other factors. For example, maintenance costs as a percentage of home value rose from 0.2% for homes built in the 2010s to 0.8% for homes built before 1960.

DECIDING HOW MUCH TO DELAY

People who prefer to hire others should expect to spend more than those who do it themselves, says Misha Fisher, chief economist at home services advice website Angi. Angi’s survey of 2,934 homeowners who paid for home improvements last year found they spent an average of $3,018 on home maintenance, Fisher says. These amounts typically ranged from 0.5% to 1% of the value of their home. Additionally, homeowners spent an average of $2,321 on urgent repairs.

Fisher recommends that homeowners set aside up to 5% of their income for home maintenance, as well as $10,000 for emergency repairs and system replacements.

Another approach is to save based on the remaining life of various components of your home, including your roof, heating and cooling systems, water heater and appliances.

You can look 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 perform a home maintenance inspection, Wessling says. Like pre-purchase home inspections, a maintenance inspection can determine when various home systems are likely to need replacing. Wessling says he typically charges $400 to $500 for inspections.

Let’s say you have a 5-year-old air conditioning system that typically has a lifespan of 15 to 20 years, Wessling says. If the new system costs $4,000, you can save $400 a year to cover that. You can add a fictional factor to account for future inflation, which is unfortunately unpredictable. Wessling suggests adding 20% ​​to the expected value and an extra $100 a year to your savings.

OTHER WAYS TO PREPARE FOR HOUSEHOLD EXPENSES

Consider setting up a home equity line of credit that you can tap into if your repair bills exceed your savings. These lines of credit tend to be less expensive than many other options, such as credit cards. Just make sure you can make the payments: If you don’t, the lender can foreclose on your home.

People struggling to save can also consider buying a home warranty, which can cover repairs and replacements for systems and appliances in the home, Militz says. Her current warranty is about $800 a year, while service visits to fix any problem are $75 each.

There are downsides to such contracts: the customer has no control over, for example, who performs the repairs, and what is covered depends on the terms of the policy. Consumer Reports recommends that people “self-insure” by instead putting the money they would have spent on a home warranty into a savings account designated for home repairs and replacements.

But Melitz, who has purchased home warranties since 2008, says the contracts give her peace of mind at a reasonable price.

“It’s kind of like car insurance. I hope you don’t need it, but you have it in case you need it,” Melitz says.

The state of housing spending is based on Angi’s analysis of surveys of 6,400 consumers between October 4 and October 7, 2021. The home maintenance and repair spending statistics were based on responses from 2,934 homeowners and are a nationally representative sample of the spending population. housing. .