by Ashley
I mentioned awhile back that after we are consumer debt-free, hubs and I have discussed starting to save more aggressively toward a down payment for a future house.
After that post (in which buying a house was mentioned toward the end), almost 100% of the comments were about the costs of home ownership. Specifically, readers wanted to warn me about how much MORE expensive it is to own compared to rent.
This came about because I’d mentioned wanting to look at relatively inexpensive homes (probably in the mid-100’s), where our monthly payment (including mortgage + tax + interest) would be roughly equivalent to what we’re currently paying in rent. Rightfully so, many of you warned about the non-mortgage related expenses of home ownership.
Some of the costs that were mentioned are costs we already incur since we rent a small home and we treat it as our own (so we pay for all yard and plant watering and maintenance, including weed suppressant, we own a lawn mower, a leaf blower, and various yard tools/supplies, etc. We paid for an exterminator for several months when we first moved in and had a big scorpion problem, etc. etc. etc.). But many of you brought up what I’ll call the “oops” factor of home-ownership. Those are the accidental/unanticipated repairs that have to be done that can be extremely costly! Things like the repairs for the great flood of 2014, or a leaking roof, or a broken A/C.
So, as an information-gathering post, I’d love to poll the audience!
I’d so appreciate, if you have the time, if any current or former home-owners would be willing to leave a comment to give me some estimates of what you would consider your monthly (or annual, if its easier) “oops” fund. Again – any expense that relates to general upkeep and repairs for your home. It doesn’t just have to be the big unexpected ones, but any routine maintenance as well (e.g., having the home painted, having trees trimmed, and whatever else you think falls into this category). I’m sure the size of the “oops fund” varies by location, house size and age, etc. But I’d just love to hear some of your stories and get your perspective on the matter. Maybe if any of you financial-types would like to provide any rough numbers (e.g., is there a rule-of-thumb percentage to plan for – like add an additional 20% to the mortgage to account for repairs and maintenance???)
Have you ever had a big, unexpected, home repair? Did you have an emergency fund or, if not, how did you pay for it?
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
It must be the day to talk about homeownership! I just posted the following comment elsewhere! Check out www.gocurrycracker.com’s website for the last 2 articles. He has seriously made us rethink everything we have ever thought about homeownership. I lived in my first house for 12 years and in no way did I come out ahead financially. I’m not saying homeownership is bad or not right for someone. There are so many variables in each individual’s situation. But it is very thought provoking.
Wow, really great articles! Thanks so much for sharing!
I found this article helpful: http://budgeting.about.com/od/budget_home/a/How-Much-Should-You-Budget-For-Home-Maintenance-And-Repairs.htm
I took the average 1% of the purchase price and $1*square footage. To that I made adjustments for living in the Northeast (winter wear and tear), living in a condo, and the age of the building (9 years). I then automated deposits to my home maintenance fund so I don’t have to think about it.
I should have done this from the beginning, and I was saving money here and there, but I didn’t come up with a systematic method until this year. I am blessed that a small inheritance allowed me to jump start my maintenance fund so the ugly bills from this year’s winter didn’t cause a crisis for me. I do have a substantial emergency fund (1 year’s worth of take home pay), but I view that as my if-I-lose-my-job fund, so I don’t want to touch unless I have some major fiscal disaster. I like having dedicated saving buckets. Others my see that has having too much in cash, and they would have a point. It all varies by person.
Thanks for sharing this article (and the rule-of-thumb formula)!!
As you already noted, these costs are going to vary by location, size, and age of the house. I live in Cook County, Illinois (in a fairly affluent area of the suburbs of Chicago). I moved from Minneapolis a year ago and had sticker shock for some of these incidental costs that I did not even know existed (permitting, etc.). We have a new construction home so the likelihood of something breaking is not too great; however I budget about $3,000 a year for the “other stuff.” We have to pay licenses for our cars in our “village” and there are yearly inspections for our sprinkler system and fire system. Additionally, in MN we blew out our sprinkler system ourself, but here it is a whole process 2X a year that involves about $500. We had a bird incident (in our dryer vent) that ended up costing us another $500. Add in maintenance for yard fertilizer, etc. and I would say we end up right at about $3000, including a little extra wiggle room for those minor catastrophes like the bird incident. We do not hire out any lawn services (but all our neighbors do) but that would tack on about another $1500 a year.
I own a small apartment but still, I had to incur some expenses in the last 11 years that I have owned my apartment. I do not set aside a specific sum for this. My Emergency Fund is the difference between my passive income and expenses times two. My assumption is that due to the size of my EF, I should be fine for emergency expenditures on my apartment.
Just out of curiousity, I tallied my numbers and I found out that on average I had spent about 2-3% of the current value of the apartment per year. This includes a complete renovation of my small bathroom, changing the windows, painting the whole house once, installing glass panels in the balcony. I also contributed to the outside painting of the condo once, change of the central heating unit, renovation of the children park and some other minor fixes around the complex that required additional funds to our regular monthly fees.
After you’ve had your job for a while and know you like it(and you plan to stay in the area), a home purchase is a wise decision. For us, we have a $350K home and our net cost of interest, insurance and taxes etc is only about $900 per month. This is the expense and not the payment as much of the payment goes to principal reduction. Now, we put down $70K but still. I comparable home might rent for $2200-$2500. Plus we write off the interest expense and taxes. Its a good deal.
After 2+ years we really haven’t had any major expenses other than pest control. Soon we will want to do some renovation to strengthen some decking. I could spend $5K on windows but its totally optional(the old ones in one room just had some spots).
The most important thing is to get something you absolutely know you’ll like long term and know you are going to stay. Our last house we spent a lot of money fixing up – they we got a job change out of state a lost a bunch because we had to sell quickly.
Personally I love the intangible of being able to garden, modify, redocorate, etc without any oversight. People say you are going to need a $5K roof or something every month but in our experience that has not been the case after 15 years of owning homes. Good luck!
Your last paragraph is why I am a homeowner and not a renter. If I want to put holes in the wall, gosh darn it, I’m gonna do it. (Then later…I’ll watch the youtube video on patching drywall).
I just (re: this past friday) had to pull my head out of the sand in regards to my old AC/Furnace system in my house. Now there’s a whole new HVAC system…and my wallet is a lot lighter. I’ve been lucky so far, that is the first “Must Fix NOW” problem I’ve had in 2.5 years of owning. That’s what an emergency fund is for. And mine…needs to be replenished now.
Ouch! But thank goodness you had the EF to cover it instead of relying on credit cards (like many, many people do)
So the concept someone else introduced of saving 1% of the purchase price for your home toward maintenance and repairs is one I use as well. However, I think with a lower cost home like the one that I have ($130k) that guideline would give me a false sense of security. Appliances cost the about the same to repair, replace, maintain no matter the cost of the home.
Anyway, the one thing I’ll put forward that happened to me was that my water heaters and boilers (I have 2 of each because my home is a duplex), which I knew needed to be replaced, but I hoped would survive at least another year, needed to be replaced within 6 months of purchasing my home, to the tune of $14k. I financed those replacement costs with a $400/mo payment. The water bill related to those replacements was $2,000, charged that. I also had a ruptured radiator which cost $1,200 to repair/replace, I charged that to a credit card, though I had the cash – I wanted to maintain some liquidity. It’s been an expensive first year.
So an important thing to consider with the 1% rule, is you are hoping a lot for good luck – that the timing of your need will happen AFTER you have accumulated some/a significant amount in your home maintenance fund. That is not always how it works out.
Ouch! That’s a tough repair bill to swallow!
I’ll add that the 1% rule should be considered for ROUTINE maintenance and repairs, not optional renovations and upgrading, so unless you are going to accept the house exactly as is, you will want to budget for upgrades, optional decor upgrades, and renovations.
Great point!
I disagree with 1% rule for home in the price range you are looking at. As others have mentioned a fridge costs the same for a 100k home as a 400k home. The difference in price is mainly due to the land and proximity to a city/area not necessarily the cost to build or maintain the home. Property tax rates should be easy to look up and the zillow mortgage calculator is pretty good on that end letting you add that amount into the estimated payment.
If you would be buying a house equivalent to the one you’ve been renting, tally up all the repairs and maintenance that you’ve had done while renting. That should be a good estimate as a bare minimum to help the place habitable.
Also, new construction homes are not always maintenance and worry free as you might think. Builders make those cookie cutter houses FAST. That’s how they make money. Sometimes in an effort to get away with some less than stellar building practices. Build faster and cover stuff up before anyone notices. Issues may not appear for 10 years or so but they will be there.
“Also, new construction homes are not always maintenance and worry free as you might think.”
Very true!!! If you buy new construction research the developer and find out if they do quality work or not. In my case our condos were built by someone who has a decent reputation, but he skimped on the attic ventilation, so I am looking at a $2800 assessment to put in a new ridge vent and soffit vents. Irritating. Also, he put an HVAC unit in the attic, so in the winter there’s a heat source that can contribute to ice damming. I’m hoping fixing the ventilation will be enough to prevent ice dams, but we’ll see.
And, our condos were better built than the newer ones next door. OMG that builder was a slacker….
I don’t think we’ll end up in new construction, but this is good to consider. My sister bought a brand new home and ended up with a major repair (can’t remember what it was now) within 3 months of living there. Luckily, my mom is a broker and was able to help negotiate splitting costs of repairs with the builder given all the circumstances (again – the actual problem escapes me, though I know it was very $$$).
I want to comment on here to let you know what my experience has been with our house, even though I don’t have exact costs on what it has cost for maintenance and upgrades. At my previous apartment, I paid $570 (IIRC) a month for a 450 SF, single bedroom, single bathroom place with 20+ ft high ceilings. All electric ($80 a month depending on the season, since I don’t like and/or sue air conditioning), no gas, sewer, water and garbage taken care of by the complex. My mortgage is currently at $554 /month (including a $70 PMI) with an original balance of $72,000. So for a slightly less monthly payment (but loads more in utility costs), I’m getting the 3x the floor space and 100x the stress and headaches. I wrote about one of them a couple times with the roof leak I’ve been dealing with. Had I known at the time I purchased the house that I would be going all out to pay off debt in the coming years, I would have stayed in the apartment. But then again, I don’t think we (GF and I) could have made the space work with our 2 dogs. Between the maintenance and very minor upgrades (paint, mostly) I have to believe I spend $1000+ a year. And that’s with trying to minimize and /or push off the costs of everything as much as I possibly can.
Yeah, that’s definitely over the 1% rule of thumb. But given what some others have mentioned (e.g., cost of some repairs is the same regardless of house price), it makes sense that a very inexpensive home (I define as < $100k) might need to go off a different (higher) percentage; maybe closer to 1.5 or 2% of home value
One thing that might also make your costs lower is that I think you’re husband’s a semi-handy guy. We had a crack in our main sewage pipe a few weekends ago, and between my husband and some family members, the cost to fix it was less than $500- including buying two new toilets (unrelated but needed expense). If we didn’t have family with that expertise, it would have easily cost $1800-2500.
gah, inability to edit! “You’re” should be “your.” My alot is ashamed…
lol, I hate when I make those types of typos, too! And, yes, you’re right that hubs is very handy and could likely save us money in that regard. Then again, he works a lot so I could see time being an issue (e.g., not having time for big repairs) and having half-finished projects sitting around forever. Still, something to think about when we start looking at places.
When I purchased my home 10 1/2 years ago, I was told then to expect to pay out about 1% of the purchase price each year in unexpected maintenance and repairs. I thought the person who told me that was nuts….but in the 10 years 1% on average has been about right. I did have one year I had to replace the furnace/ac unit and I ended up putting that on an interest free credit card that I paid off within 18 months. Good luck with finding your home. I know you’ve been told all the things to watch out for but also remember your mortgage interest and property taxes can be taken off your taxes at the end of each year. Can’t do that with a rental.
We’ve been in our home 3 years and I started with the 1% of purchase price rule and modified it to 0.1% per month for repairs and an additional 0.05% per month for routine and preventive maintenance. I separate them this way because our home was built in 1975 and I know we it will require replacing the HVAC unit within the next 5-10 years (repair) and we have an in-ground pool and quite a few older trees on our lot that seem to require pruning/trimming/cutting down every year.
I found this page interesting. The engineer in me would look at the average life expectancy, determine a replacement cost, and calculate an average yearly “cost” per month to set aside for repairs and replacements of appliances and interior fittings. I did this quickly for standard appliances (oven, fridge, washer, dryer, etc.) and calc’d out $530 annual average! That’s about an appliance a year and doesn’t count any upgrades, painting, exterior upkeep, and other general maintenance. So for a 130k house I would definitely budget more than 1% of the value. Yes, I’m a huge spreadsheet dork.
http://www.nachi.org/life-expectancy.htm
I LOVE this! Thanks for sharing!!! (spreadsheet dorks unite!) ; )
i did this as well when I purchased our home last March. The home is 20 years old and the furnace and air is close to end of life. So I have started a fund anticipating the replacement of these items. We also have well and septic costs that I wanted to be sure I had those covered. The spreadsheet certainly helped me figure out if I could afford the home and made me feel more comfortable that I had put the thought into it.
Our home is almost 8 years old and just this year we have spent $11k on replacing one a/c unit and replacing the condenser coil in another. At this point, I’m just earmarking what we would spend on a mortgage payment for upkeep since our appliances are now all 8 or more years old (we are completely debt free). I like the suggestion of saving 0.1% routinely for expenses on top of a starter amount of 1%. I know that would have more than covered even our expensive repairs this year!
I agree with the1% rule as a general guideline. since you are looking at a less expensive home i would think you should plan on it being a little higher. In a given 10 year period you likely will have to paint the exterior; may have to replace hvac, replace an appliance, water heater, ect. That would be around $10k. If you purchase a $150k home and in that 10 years saved $15k (1% per annum). So any routine maintenance, maybe a new roof or a replaced window/ sliding door.
My experience has been 1-2% of my home cost so anywhere from $1500-$3000. Each year something broke including flooding ($1000 deductible) and an appliance needed to be replaced because it had reached the end of it’s life (water heater, wall over, etc.) I have only owned a house for a little over 2 years now.
We have owned our house for a little more than a year (10 year old house) – our realtor gifted us with a year of home warranty through American Home Shield. It covers the main appliances in the house. If something broke,we pai the $75 trip fee but almost everything else was covered. Within the first month of living here we had the AC break, garbage disposal jam and oven circuitboard fail. Easily couldv’e cost us thousands (but didn’t).
They asked in June if I would like to purchase another year of coverage – I hesitated but signed the check on 6/20. On 7/7, our AC compressor went out. They didn’t cover all of it (we paid $990, they paid $2000) but still worth it.
Moral? If you are not handy and any of the appliances will need to be replaced, get the warranty!
We just bought a new construction.. So far we’ve spent hundreds in landscaping and there’s still more to be done not including the water bill for this landscaping. We also have a bad neighbor on one side who forced us to make the decision to get a survey since she wanted to account for every centimeter of grass which was upwards of $500. Definitely just save way more than you think you’ll need that’s the only way to play if safe with a house. I wish we had more to save before buying but we just didn’t and were in a unique situation. Just don’t be house poor, and expect the unexpected so that you can actually enjoy your home!
I live in a 1939 house that offers me more than my fair share of “ah-crap” moments.
In the eight years I’ve lived here it’s worked out to an average of >$5000 a year – this works out to about 1.5% for just repairs – not improvements or cosmetic changes.
This number would have been significantly higher, except I’m pretty handy and have super handy family/friends who have helped me out for just material costs. I only bring in trades people when the task is beyond our skill level, too large or don’t have the equipment.
These moments have included [but certainly aren’t limited to]; new roof – d/t massive hole and leak issue, new furnace & a/c, multiple sewage back ups – d/t city tree roots, once d/t friend flushing baby wipes down toilet, once d/t dog dropping her ball down the clean out & the toilet flushing at the same time!, raccoons moving into attic, repairs post break-in not covered by insurance & deductible, chimney repair & parging repair [d/t leaking], large appliance repairs – dishwasher, washing machine & dryer, basement flooding in spring with snow melt, flooding toilets…..
I put a monthly house allotment away for house repairs, but d/t the massive hit so quickly with the roof and the furnace/a/c there was a “family loan” given that is in the process of being paid back. My alternate plan was to roll it into the mortgage as neither were optional – at 26 years old the furnace had been repaired twice already in the prior months and the repair man said this is now a risk to burning your house down – I will not repair it again! And the roof, I could see the hole from the ground!
We bought a 53 year old house for $155,000 in 1999 in a pleasant neighborhood known for good solid buildings–and it is. We have been lucky. It could be sold tomorrow for ca $285,000. We are often approached by Real Estate agents looking for places in this area (walking distance to big university in this small city, ditto downtown and on a bus route) so what have we spent on it?
New roof, plus soffets, outside paint job,new automatic opening garage door, three large unhealthy trees removed, new furnace, new air conditioner, new water heater, new dishwasher, installed sump pump and altered ground levels back and front– both sloped towards house and caused rain water problems.
Then we had two completely new bathrooms done including tiled floors. All of this was more or less necessary. We love this place and don’t feel that we have wasted a penny but owning a house adds serious expenses. None of this was unexpected.
P.S.
Our mortgage payment, the PITI, is $922 per month at a rate of 3.8 per cent. It is one of the nicest places in the area, backing on to a golf course, with woods beyond that. I’m not trying to boast. We lucked out.
Not to drone on but this has included none of the “small” expenses such as electrical work on power plugs, plumbing leaks, new ventilation hood over range top, oh, and new gutters…