Are you actively planning for home repairs or crossing your fingers and hoping they don’t happen? If you’re lucky, you might avoid major problems for a year or two after buying your house. However, maintenance is an inevitable part of homeownership, and eventually, you’ll face your first big repair bill. When it happens, will you be prepared?
Three Smart Reasons to Save for Home Repairs
It Makes Emergency Repairs Less Stressful
Dealing with a broken furnace or leaky roof is stressful enough. Scrambling to find the money to pay for it, too? That’s any homeowner’s worst nightmare. When you have the cash to pay for repairs, you can skip the panic and go straight to calling your home repair contractor for a fix.
You Don’t Want to Put a New Roof on Credit
Without a home repair fund, the fastest way to access cash in a pinch is with a credit card. However, if you can’t pay the credit card bill quickly, your home repair will grow a lot more expensive thanks to interest rates near 20 percent. If you make minimum payments on a $5,000 repair bill, you’ll spend nearly twice as much and take more than 10 years to pay off the debt.
Your Emergency Fund Has a More Important Job
Why not tap into your existing emergency fund instead of saving separately for home repairs? It’s a good question, but predictable expenses like home repairs aren’t what an emergency fund is designed for. If you drain your emergency fund for home repairs, you won’t have a cash cushion if you lose your job, incur medical debt, or face another of life’s emergencies.
It’s not necessary to keep your emergency and home repair funds in separate accounts, but you should save enough for both. Most experts recommend three to six months of living expenses in an emergency fund and 10 percent of your mortgage payment in your home repair fund.
How to Finance Home Repairs
Unfortunately, homes don’t always wait until you’ve saved enough money to break down. If your home needs a repair but your fund is low, you have a few options to finance the repair.
File a Homeowners Insurance Claim
If a home repair was caused by a storm or fire, your homeowners insurance policy may pay for those repairs. Even if you think a repair isn’t covered by insurance, it’s always worth reviewing your policy before paying out-of-pocket. However, homeowners insurance typically doesn’t cover repairs caused by flooding, mold, or wear and tear.
Tap Into Home Equity
Your home is your biggest asset, which makes it the obvious pick when you need access to large sums of money. If you have equity in your home, opt for a home equity loan, which offers low, fixed interest rates for one-time projects like roof replacements. For homeowners with less equity, a cash-out refinance is a better choice; PennyMac refinance options, for example, allow you to refinance your home loan and receive the money you need to tackle any repairs you may encounter. However, conventional and FHA cash-out refinancing require equity of 20 percent and 15 percent, respectively, while VA cash-outs require even less.
Apply for a Personal Loan
Interest rates on personal loans tend to be higher than home equity loans and cash-out refinances, but if you don’t have enough equity to finance your repair or need the money fast, a personal loan is your best option. Personal loans are also better for smaller projects, as there are fewer fees associated with personal loans compared to equity loans.
Even when you’re prepared, the cost of home repairs is a hard pill to swallow. One unexpected way you can save money on home repairs is by choosing your home remodeling contractor wisely. Not only will a reputable contractor charge a fair price, but they’ll also do high-quality work that lasts for years so you don’t have to worry about another breakdown anytime soon. When it comes to something as important as your home, you want to do it right the first time.
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