Dear Miss Money Matters,
I just purchased my first home and keep hearing the cost of home ownership goes well beyond my monthly mortgage and insurance payments. In particular, people say I need to be prepared for all the things that could go wrong. I’d like to know more about what kinds of expenses I should be prepared for and what I can do to minimize the chance of having costly unexpected repairs.
— Sarah D., Watertown, Mass.
Congratulations on the purchase of your new home. Becoming a homeowner is exciting, but it also can add a strain on your budget. That’s because what you’ve heard is correct: The cost of home ownership does go beyond your monthly mortgage and insurance payments.
Click to read more about why it costs $1,204 a month to maintain the average home.
“Often times, unexpected expenses do pop up after you purchase a home,” said DIY expert and HGTV’s “Elbow Room” host Chip Wade. “For example, an appliance might break or you might have a leaky roof.” Other costly home repairs that can catch you by surprise include plumbing problems, heating and cooling system issues, a blocked chimney and tree removal, to name a few.
The problem is, most people aren’t financially prepared for these expenses. A new survey by Liberty Mutual Insurance found that 48 percent of homeowners have less than $1,000 saved for home maintenance issues or repairs. About one-third have nothing set aside to cover these costs.
Ideally, you should set aside 1 to 2 percent of your home’s purchase price to cover annual maintenance and repairs, Wade said. So if you paid $200,000 for your home, saving 2 percent of that amount — or $4,000 — would provide a good cash cushion to cover home repairs. “If you start saving now, you will be prepared for any future problems,” he said.
More on Savings: How Much You Should Have Saved in an Emergency Fund
Of course, that might be easier said than done. You might have to look for ways to cut spending — such as eliminating lunches out, opting for a cheaper phone plan or using coupons for groceries — to build an emergency fund for home repairs. To make sure you actually set aside money, set up a monthly automatic transfer from your checking account to your savings account.
It’s also important to stay on top of regular up-keep of your home to avoid major problems and save money in the long run, Wade said. For example, check your windows for dry rot and water damage to ensure that cool air doesn’t escape in the summer and warm air in your home doesn’t escape in the winter.
“Also, make sure to clean the vent above your stovetop,” Wade said. “Not only does this increase the effectiveness of the vent, but it also ensures that flames are less likely to spread in case of a kitchen fire.”
Liberty Mutual has an online resource called Dwellbeing that can help you stay on top of regular home maintenance. It sends you customized alerts when common household appliances or systems need to be maintained. The Dwellbeing website also provides recommendations for professionals who can make repairs.
Wade also recommends that you make sure you have adequate insurance coverage if you recently bought a home or are planning a major home improvement project. More than 60 percent of homeowners surveyed by Liberty Mutual said they didn’t contact their insurer after a major home improvement.
Click to read more about eight startling facts that blindside homebuyers.
Life + Money columnist Cameron Huddleston answers your money questions, drawing from her more than 15 years of experience as a personal finance journalist, as well as advice from financial experts. If you have money questions, send them to firstname.lastname@example.org with the subject line Dear Miss Money Matters.
More on Saving Money on Homes