5 Ways to Fund Home Repairs

There are many great things about owning a home, but the need to finance home repairs is not one of them. Repair costs often pop up unexpectedly and at inappropriate times, like a broken stove in the middle of winter or an extensive roof repair right after you return from vacation. And they are rarely cheap. In 2018, 88% of American homeowners had to deal with at least one major repair, with an average annual expense of nearly $ 5,000.

A home is a big investment, and like many other big investments, you need to take steps to maintain and improve it if you want to repay. And depending on the age and condition of your home, a big part of maintaining your investment is taking care of home repairs. So how do you finance home repairs without completely draining your savings? Alternatively, how do you finance home repairs if you do not have a lot of savings? Fortunately there are options to help in both cases.

Budget for home repairs
Even before you start exploring ways to finance home repairs, you need to actively consider the possibility of repairs in your budget. There are several ways you can choose to do this, but many homeowners obey the 1% rule or the square measure rule. Here's how they work:

Rule 1% Dictates that you must set aside 1% of the purchase price of your home each year for potential repair costs. So if you bought your home for $ 250,000, that's $ 2,500 allocated in your budget year after year for maintenance and repairs. The logic behind the 1% rule is not that your repairs are going to cost you so much every year, but that it is a good way to set a guideline and encourage yourself to save.

Variations on this rule include saving 2-3% instead of 1%, or placing 10% of what you spend on property taxes, mortgage payments and monthly insurance payments for repairs. With the last rule of thumb, if you spend $ 2,000 a month on these combined expenses, you will want to spend an additional $ 200 a month to save on repairs.

The square measure rule Is a recommendation that budget $ 1 per square foot of your home for repairs. A 2,200-square-foot home means $ 2,200 a year in repairs, for example, and a 3,000-square-foot home means $ 3,000 a year. Again, this does not mean that there is a direct correlation between the size of the area of ​​your home and what you will incur repair costs each year - this is just a good way to ensure you save a fair share of changes to these types of expenses.

How To Fund Home Repairs
Even with a well-executed savings plan, it is not uncommon to need additional funds when it comes to financing home repairs. If you save $ 2,000 a year for example, you will see that it will pass quickly if you need a roof repair (average $ 351 to $ 1,352, depending on whether the repair is small or large) followed by a new water heater (average $ 767 to $ 1,447 with the new unit and work). And there is always the possibility of needing an infamous repair, such as a basic repair (average cost of $ 4,511 but can range up to $ 15,000) or having to repair and repair after water damage has occurred (average cost of $ 2,701).

As might be expected, many homeowners will find themselves at some point having to fund home repairs. And fortunately, there are some good options on how to do it. Here are five of them:

Equity line of equity
Is a loan you take out using the equity you own in the home. Think of it almost like a credit card, where the set limit you can borrow is the amount of equity you have when you first spend.
Usually, you will have a 10-year withdrawal period during which you can withdraw money from this fund, followed by a 20-year repayment period.

There are several benefits to using a home credit line to finance home repairs.
First, there are usually low interest rates - or at least lower than what you will find with other loan options. This is because lenders consider these loans a less risky endeavor on their part, as you have already shown your ability to earn and pay that amount with your mortgage.

Another benefit is that you can spend as much money as you need, instead of spending all of your equity as a lump sum. If you have $ 50,000 to borrow equity since then, you can spend money multiple times during the lottery period - maybe $ 5,000 for a large roof repair in one year, $ 2,500 for a new gas stove another year, and so on. And you will only pay interest on the amount you actually withdraw from the available limit.

Cash-out refinancing
Cash refinancing takes your existing mortgage and turns it into a bigger mortgage, meaning you get a new loan that puts more money in your pocket for things like housekeeping and repairs. You can get refinancing of up to 80% of the market value of your home, then take the difference in cash.

Choosing to refinance cash to finance home repairs is a popular choice, since depending on market conditions and how much you have already paid for your original mortgage, you may get a large amount of cash that you can then put into repair needs.

Unlike a home equity line of credit, cash refinancing is not borrowed from your existing mortgage. Instead, it creates a whole new mortgage for your property, with its own rates, loan terms and repayment schedules. This means that you may be able to get additional cash refinancing benefits if your mortgage rates have become more favorable since you first purchased your home.

FHA Title-1 Loan
A home equity line of credit or cash refinancing is great if you have a lot of equity in your home, but what if you incur an expensive repair cost in the first year of home ownership or at some point in it. To increase a significant amount of equity? In this situation, you may want to consider a loan
Allowing you to borrow money especially for many types of home repairs and improvements.

There are some guidelines that you should be aware of in a loan
To get started, the maximum loan amount is $ 25,000 for a standard single-family home, and loans over $ 7,500 require you to keep your home as collateral (loans under $ 7,500 do not have to be secured by your home). The loan repayment period for a single-family home is 20 years.

Loans are at a fixed interest rate, so you will not have to worry about variable interest rates during your repayment period. To be eligible, you will need to have a debt-to-income ratio of 45% and below, and you must apply the loan for approved repair or improvement costs. You can find more information by visiting the Ministry of Housing loan information page.

credit cards
Using a credit card to fund home repairs can be an easy way, especially if you have a high enough limit on your credit card to borrow money from there. If you do not, you will probably have no problem applying and getting a new credit card just for home repairs.

However, it is important to note that credit cards are not always the best way. Whatever you earn comfortably, you may pay high interest rates and higher monthly payments with a shorter repayment period than you would get with other types of refinance financing loans. Check the other options above before choosing a credit card if you are facing a large repair cost and compare interest rates and other loan terms. If you only need to cover a basic and not too expensive repair, though a credit card may be a good way.

Personal loan
Finally, you can consider getting a personal loan just for home repairs. These tend to have higher interest rates than options like a home credit line and shorter repayment periods, but you will have plenty of freedom to use the loan as you need, and you will usually be able to borrow up to $ 40,000.

First check with your existing bank to see what types of terms they offer for personal loans, and then expand your search to other lenders. If you can find a personal loan with favorable rates and conditions, then you should definitely consider it as a way to finance home repairs.

Final takeaway
Home repairs almost always have to be completed, even if you have no money on hand. Review the options available above and find a loan option that makes the most sense for your long-term financial goals and your existing financial situation, and be sure to also consider the repair costs in your annual budget.