Owning a home has long been considered part of the American Dream. It can be quite satisfying as a young adult to finally break free from a life of paying rent to a landlord and staking claim on your own piece of property where you’re free to do as you please and begin building equity in something that will hopefully appreciate in value over time. While the decline of real estate values in many parts of the country have diminished that dream somewhat, as the market slowly begins to stabilize and recover, that means there are a lot of new home owners entering the market.
For those of you who currently own, or have owned a home in the past, I’m sure you remember the first few months after getting the keys to your new home. The sense of pride and accomplishment fuels excitement and you’re quickly on your way to making your house a home with little improvements and personal touches. I also don’t need to remind current or past homeowners about the maintenance and repair expenses that nobody told you about when you signed your life away on the mortgage documents.
When it comes to owning a home there are three big expenses that everybody factors in: mortgage payments, homeowners insurance, and property taxes. Obviously, these expenses make up the bulk of home ownership expenses, but for new homeowners there are usually some ugly, hidden, and unexpected expenses that can really put a hurt on your budget if they aren’t accounted for.
Home Maintenance Costs
As a renter, maintenance costs typically never even cross your mind. When it snows, your sidewalk and parking lot gets cleared and salted. In the summer, the common areas and landscaping get watered and taken care of. And when the building needs a new coat of paint or updates to keep it current, the landlord takes care of it. When you own your own home these responsibilities suddenly fall on your shoulders.
New homeowners often underestimate how much it actually costs to maintain a home. For example, take someone who finally moves out of an apartment and buys a nice little ranch out in the suburbs. Chances are this house has a lawn and probably even some landscaping around the house. Coming from an apartment where lawn maintenance wasn’t even a distant thought, suddenly you’d need to come up with a lawn mower, rakes, a trimmer, and various garden tools just to keep things looking nice (or be prepared to fork over a lot of money to a lawn care company).
Depending on the size of the lawn you may even want or need a riding mower. That means you could be looking to spend anywhere from a couple hundred dollars for a push mower to upwards of a few thousand for a riding mower. And remember, these things require gasoline, and at four buck a gallon that can add up. And all of those yard and gardening tools? A rake here, a snow shovel there, and a weed trimmer and such will add up. You may not realize it, but as you begin to accumulate tools you’ll slowly spend hundreds of dollars just on basic landscape maintenance tools.
Did you happen to buy a home with an irrigation system? Say hello to additional unexpected costs. In cool climates you’ll typically need to have the system winterized each fall to keep the pipes from freezing. That’s easily $50-$100 a year. And when your new lawn mower hacks up a sprinkler head, get ready to shell out some money to fix it. And if you’re on city water, be prepared for an increased water bill as well.
This is just the tip of the home maintenance iceberg. Sure, maintaining the outside of your home can obviously become costly, but as you know there is always work to be done to keep your home in proper working order. We haven’t even stepped through the front door yet and you could be on the hook for hundreds of extra dollars a year, not to mention plenty of hours of your free time spent keeping up good appearances from the curb.
Home Repair Costs
While maintaining a home can prove to be a costly added expense, where you really get hit is with repairs or replacing broken items. Most people assume that it’s mainly older homes that are subject to frequent repairs, but that’s not necessarily true. Appliances break and accidents happen even in new homes. I can attest to this because we bought a home just a couple of years ago, and the home itself is only about six years old now, but we’ve had plenty of things that needed to be fixed. Let me run down a list of what we’ve had to do in less than three years.
- Sewage ejector pump went bad. Luckily I caught it, but the ejector pump in the basement stopped working and waste water started coming back up through the drains. It happened at about one in the morning and luckily I was awake to notice it and was able to siphon the water away temporarily, otherwise it could have caused thousands of dollars in damage to the wood flooring and drywall. In the end, it cost over $300 to have it all taken care of.
- Siding repair. After a pretty nasty storm a few pieces of siding got ripped off one of the peaks near the roof of the house. A $150 repair with materials and labor.
- Microwave replacement. The microwave, which was also the hood vent over the range, just decided to stop working one day. A local appliance repair shop wanted a $100 service fee just to come look at it, and any repairs to fix it would be extra. So, we just bought another one. There’s another $300.
- Dishwasher replacement. Same sort of deal here and the dishwasher crapped out. After searching and reading about the problem online, it looked like we could either spend about $300 trying to repair it, or get a brand new one for about $500. Either way, we’re out another few hundred bucks.
- Oven/stove replacement. Yes, this is the third kitchen appliance in just two years to go out. Granted, whoever built this house put in the cheapest possible stove imaginable, so the repair costs would have been as much as the thing was worth, so we opted to upgrade and splurge a bit since we cook virtually every meal at home. There goes another $1,500.
- Irrigation backflow preventer. We had a really early and hard freeze about a year ago and the exterior pipes froze and busted the backflow valve. This is by design to prevent even worse damage to other items, but it still resulted in a service call and about $100 in repairs.
- Hot water heater. Nothing like waking up in the morning to a cold shower. The hot water heater wasn’t lighting. I spent an hour or two troubleshooting and was able to fix it myself, but not after wasting the better part of a Saturday afternoon running back and forth from the hardware store and spending at least $50 in tools and parts.
- Garage door repair. Most recently, I came home and hit the garage door opener in my car so I could get in, and to my surprise the garage door wasn’t opening. Low and behold, I walk around into the garage and find one of the springs snapped. $180 and two days later, I can park in the garage again.
In less than three years in a home that’s less than ten years old, we’ve spent over $3,000 on relatively expensive repairs or replacements. And these are just the large items off the top of my head. Obviously, there are plenty of little day to day type repairs that don’t cost much at the time, but certainly add up.
Clearly, everybody’s home will be different. You may go years without a single repair needed, or you might get hit with a bunch in a short amount of time. Either way, these expenses almost always seem to come at the worst possible time, and if you haven’t budgeted for them, guess what? They usually get put on a credit card, and if that isn’t paid off right away, becomes even more costly with interest.
Creating a Home Maintenance and Repair Fund
Since there’s usually little warning when something is about to break or if a repair will be needed, your best bet is to prepare and set money aside before it happens. You don’t want to come home to broken plumbing flooding your basement only to be further stressed because the only way you can afford to fix it is to throw it on a high-interest credit card. If you’ve got a little emergency reserve set aside just to cover these types of situations you can rest much easier.
The next big question is how much should you set aside. With anything about savings, more is always better, but here’s a good rule of thumb to follow. Take 10 percent of your monthly mortgage payment, (just the principal and interest) and divert that into a high-yield savings account. For example, if your mortgage payment is $1,000, aim to put $100 a month into a special home maintenance and repair fund.
Chances are you won’t need to dip into this fund all that often, but the idea is to essentially tack on 10% to your base mortgage payment and use that to cover the costs that aren’t advertised when you buy a home. Then when something does break, needs to be repaired, or you simply need to buy another lawn tool, the money will be there for you and it won’t siphon money away from the rest of your budget.
And guess what? Worst case scenario is you’re lucky and you can go a few years without needing to spend money on costly repairs and your home maintenance fund builds up nicely and is earning interest the entire time. That will help make the next home-improvement project go even smoother.
So before you’re ready to become a homeowner, make sure you’re thinking beyond the mortgage, insurance, and property taxes. Those items certainly make up the bulk of what it costs to own a home, but don’t get caught off guard and set aside 10 percent to create a cushion to cover those inevitable maintenance and repair costs.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.