The financial responsibilities of home ownership certainly don't begin and end at closing. All too often many first-time home buyers find themselves surprised at the cost of emergency repairs and/or ongoing home maintenance once they finally move into their home. For this reason, it's wise to start budgeting for routine home repairs and maintenance by setting aside a little each month.
There are two common “rules of thumb” regarding how much money you should budget for on an annual basis for home repairs. Here we've presented you with both, so you can see which might make better sense for you when creating a budget.
The Home Repair 1-4% Rule
This is a “rule of thumb” that no one can truly seem to come to a consensus on. A wide berth of financial experts across the industry suggest that you simply set aside as little as 1% or as much as 4% of the total value of your home each year in order to budget for maintenance or emergency home repairs. So if you paid $250K for your home, you would set aside somewhere between $2,500-$10,000 every year.
While this may seem like an efficient way to save for home repairs, critics of this rule of thumb argue that the amount set aside is somewhat arbitrary, and doesn't account for a wide variety of factors, such as the age of your home, whether most of the value of your home is in the land itself, whether your home is attached or single family, etc. These criticisms are valid, and if the aforementioned factors apply specifically to your home, or if you feel it's unreasonable for you to set aside that much cash every year, you might prefer the next option.
The $1 Per Square Foot Rule for Home Maintenance
This rule of thumb uses the size of your home to budget for your home repair fund, instead of the value. So if your home is 2,500 square feet, you would need to save at least $2,500 per year for home maintenance and repairs.
If you're worried that neither of these rules actually allows you to save up enough to cover the high cost of home repairs in your area, then it's important to do a little research. What might your home need to have replaced in the next five years? A backyard fence? Flooring? Old pipes? A new roof? Are there issues in your area with excessive moisture build-up or even flooding?
In order to get a good idea of what your most pressing home repairs might cost, you can gather quotes from local contractors, or talk to other homeowners that you're friendly with in your neighborhood about the costs of their own recent home repairs. If you prefer to do less legwork, you can always hire a licensed home inspector to assess your home, help you identify its biggest weaknesses, and give you estimates for the cost of repairs and replacements in your area.
You can find more info about creating an emergency fund for urgent home repairs or other saving scenarios.