The true cost of home ownership adds up to so much more than your monthly mortgage payment. After accounting for utilities, property taxes and insurance, you also need to budget for ongoing maintenance and big-ticket repairs. If you plan on staying in your home for at least the next five to 10 years, it's smart to start saving today for tomorrow's busted furnace and leaky roof. Ignore 'Rules of Thumb'
When buying a home, some financial planners suggest budgeting one or two percent of the purchase price to cover annual maintenance and repairs. For example, if your home costs $200,000, set aside $2,000 a year for ongoing repairs and replacements. Other folks recommend budgeting $1 per square foot. So if your home is 3,000 square feet, save $3,000 a year for maintenance.
But there are serious flaws with these "rules of thumb." There are so many factors that contribute to the ongoing maintenance costs of a particular house: the age of the house, its condition, local weather, the rates for local contractors and more. Do the Actual Math
A far more accurate way to budget for long-term repairs is to calculate the expected life of your home's big-ticket components and save enough each year to cover their eventual replacement. This isn't hard, but it does take some careful record-keeping and a little research.
The first step is to focus on the components of your home that will cost the most to repair or replace, or those that will cause the most damage if they fail. Because of their expense, we recommend starting with the foundation, roofing and siding, HVAC, and plumbing-related components.
The International Association of Certified Home Inspectors (InterNACHI) publishes a detailed estimated life expectancy chart
for home components and appliances. According to InterNACHI, a roof constructed with asphalt shingles should last 20 years.1
If you buy a home that's older than 20 years, check whether the previous owners replaced the roof or have your home inspector estimate its age. Then calculate how many years are left until the roof "expires."
Next, you need to estimate the cost of roof repairs. According to Remodeling's 2016 Cost vs. Value report
, a roofing replacement - which includes stripping and disposing of old shingles, laying new building paper, and installing new shingles and flashing - costs $20,142 on average nationally.2
You can also contact local contractors for more accurate pricing in your area.
The final step is to divide the replacement cost by the number of years left in the roof's expected life. If your roof will likely need to be replaced in 5 years, it would be smart to set aside $4,000 a year to cover the cost. If it makes you feel better, the Remodeling report estimates that you should recoup 71.7 percent of your roofing repair costs when you sell the house.1
Make a Five-year Plan
Unless you have an impressively high savings rate, it's not realistic to start saving now to cover the next 30 years of home repairs. A better plan is to budget for the next five years.
Chances are that very few big-budget items are going to need to be repaired or replaced in the next five years. Review the major components of your HVAC system, the age and condition of your foundation, the life expectancy of your roofing and siding, and potential plumbing risks like an aging water heater. Call a professional like a structural engineer or a roofing contractor if you have any questions or concerns.
Which of these components will most likely need to be repaired or replaced in the next five years? And which will cost more than your normal savings can handle? Those are the items you should start saving for now in order to avoid financial headaches later.
Let's go back to the roofing example from before. In that case, the roof is something that will most likely need to be replaced in the next five years. Saving $4,000 a year for the next five years is a challenge, but it's better than waiting until the roof collapses and going $20,000 into debt to cover the replacement.
What about home warranties? Both Consumer Reports and Consumers' Checkbook suggest that you're better off putting the $400 to $600 you would spend annually on a home warranty into your maintenance and repair fund.
Whatever approach you take on budgeting for expensive home repairs, you'll be glad you did when your furnace unexpectedly dies or your air conditioner suddenly needs to be replaced.