Did you forget something? Some homeowners forget to factor in the cost of annual maintenance costs when purchasing a new home. A general rule of thumb is that one percent of the home’s purchase price should be set aside each year for ongoing maintenance. But sometimes, certain homes will require more upfront repairs and costs.
When Jonelle Brown, a Marketing Coordinator for the American Armed Forces Mutual Aid Association (AAFMAA), bought her first home, it was a split-level single-family home in Fayetteville, NC, and she went into the deal eyes-wide-open. “The home was built in 1964 and was my grandparents’,” she says.
She bought the home knowing there was a water leak and mold problem on the walls of the bottom floor. She has since replaced “almost everything” on the lower and upper levels.
Insurance covered a lot of the cost of repairs — new flooring, paint, and carpeting — but Brown also used a Home Equity Line of Credit to upgrade the bathrooms, update appliances and replace outdated electrical wiring throughout the home.
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So What’s the Bottom Line?
If you’re in the market to buy a home, you’ll need to realize there’s much more to it than just paying your mortgage. Home repairs can have a big (and sometimes unforeseen) impact on your monthly budget — so it’s probably best to plan ahead for expenses you may face as a homeowner.
How much money you need to set aside in your budget for monthly maintenance and repairs will vary by the type of home you buy — its location, age, and other factors.
The average single-family home will require basic hazard insurance, regular lawn care (snow removal in cold climates), property taxes, and basic repairs and updates. If you live near a flood zone, you may experience flooding in your basement and around your outside walls. This is something to deal with immediately before serious damage occurs.
Age matters, too. Older houses cost more in maintenance than newer houses because everything is constantly aging and depreciating. The appliances, pool pump, roof, plumbing, wiring, foundation, etc. Eventually, you will have to fix it or replace it. You may not incur all of those costs in one year, but you should be setting aside enough funds in advance to cover them when they do come up.
In Brown’s case, her air conditioning unit is 25 years old. “It’s alive and well, but I’m financially prepared for the day it decides not to work,” she says. On the upside to buying an older home, she says, is that the materials used by the builder are often “top notch” and worth refurbishing (though sometimes hard to find). “I’ve replaced almost everything to look as original as possible, with a modern flair.”
How Much to Set Aside
For typical single-family homes, The Balance suggests the “1% Rule.” That means budgeting 1% of your home’s purchase price for maintenance each year. So, if you buy a home for $300,000, plan to spend $3,000 a year for maintenance.
A “mansion” can be more expensive. For one, they’re bigger — Realtor.com puts the minimum square footage of a mansion at 5,000 square feet (around double the average single-family home), and technically more like 8,000+ square feet. If you have a home worth $1M, expect maintenance to be as much as $1,000 to $3,333 per month, according to Freddie Mac.
Mansions are also often located in high-risk zones such as Miami, FL (hurricanes) or Malibu, CA (landslides). Owning a home in these locations means expensive flood and windstorm insurance on top of basic hazard insurance.
Special Considerations for Condos
Estimating maintenance expenses for condos can be tricky because while the building owner or a homeowners association (HOA) takes care of the exterior and infrastructure, you will need to pay all or a portion of other repair costs (plumbing, electrical, sewer, and landscaping, for example).
If you live in a condo, you’ll need to budget for paying monthly or quarterly dues and keep your eyes open for notice of big improvements being done, like putting custom pavers throughout the development. The cost of projects like that may be divided and sent as a “special assessment” billing of several thousand dollars to unit owners. You’ll want to have some cash reserves to handle this type of charge.
How to Keep Your Costs Down
There are several ways to minimize the chance you’ll be facing a large repair bill while you’re still settling in. First, be sure to get a thorough home inspection and get quotes on homeowner’s insurance and property taxes before buying. If there are certain small items to repair (a gate latch) you can ask the seller to make the repair since that could be a hazard to kids or dogs getting out of the yard. If something turns up in your inspection report that could be a major cost to repair (like removing asbestos) get an estimate on the project and decide if that’s something you are willing to undertake financially.
If your dishwasher, dryer, refrigerator, washer or other appliances are more than eight years old, you can consider upgrading to energy-efficient appliances to save on energy bills.
You can also consider buying a home warranty plan for the property. Some sellers will even split the cost of the plan for your first year.
We’re Here to Help
If you’re not certain about whether or not it’s the right time to purchase a home, or refinance your existing mortgage, please contact us online today or give us a call at (877) 387-6856. One of our Military Mortgage Advisors will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs.
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