How to Budget for Maintenance and Repairs When Buying a Home

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It's easy to get caught up in the excitement of buying a house. If you've been working toward the goal for some time now, you're probably dreaming of getting the keys and settling into a place you can really call your own. However, great things come with great responsibility, and part of that responsibility—to maintain and repair your house as needed—can be rather costly. So before you sign the contract for a new house, it's important to factor in these future expenses, and not just the upfront costs.

While you may already be prepared to tackle some of the routine maintenance that comes with owning a home, like replacing air filters and cleaning the gutters, unforeseen damages and repairs can set you back financially. In fact, according to home insurance company Hippo's 2021 Homeownership Report, 77 percent of homeowners dealt with an unexpected issue that needed repair within the first year of ownership, and 53 percent of those homeowners said the cost of those repairs ranged from $1,000 to $5,000. That's why a home maintenance budget should factor into the unexpected costs just as much as the routine ones. We talked with real estate and home insurance experts to find out how to build a proactive home maintenance budget. Keep reading to learn how to be financially prepared for your new property.

RELATED: 7 Things First-Time Home Buyers Wish They Knew

What home maintenance and repairs should you plan for?

Before planning a budget for home maintenance and repairs, it's important to first know what that entails. When renting, the landlord or maintenance company is responsible for fixing most of what gets broken, so, if you've had something like a kitchen appliance break, you may not have considered the cost. However, if your dishwasher breaks in the home you own, you're going to be the one paying the bill to fix or replace it—and you'll be kicking yourself if it broke because you neglected to clean the dishwasher filter. Homeowners should be fully aware of the routine maintenance needed to keep everything running. "Routine maintenance and upkeep can help you save a ton of money and stress," says Andrea Collins, home insights expert at Hippo.

There's a lot to keep track of, so it helps to reference a checklist, like this one from Hippo, that breaks down home maintenance into monthly, seasonal, and annual tasks. This includes everything from cleaning out the dryer vent on a monthly basis to draining and refilling hot water heaters each year. Many of these tasks take less than 20 minutes, and you can do them yourself without spending any money—and they'll save you money by preventing costly repairs in the future.

Collins also emphasized the importance of season-specific maintenance and preparing for weather-related damages, no matter where you live. In the past year, she says homeowners were commonly dealing with cold-weather issues like broken or frozen pipes, ice dams on roofs, and water leaks—and these issues aren't cheap. According to the Insurance Information Institute, about one in 50 homeowners will file a water damage or freezing claim (which costs about $11,000, on average), accounting for almost 24 percent of all homeowners insurance claims. So don't shrug off the importance of routine maintenance—your home and your bank account will thank you later.

How to budget for home maintenance and repairs

No matter how good you are at performing routine maintenance in a home, replacements and repairs will inevitably be necessary over time. The best way to budget for those costs is to start saving for them as soon as possible, says real estate investor J Scott.

"So there are these big things on any property called the capital expenses, and these are the big-ticket items that any homeowner's going to have to deal with, whether it's now or 20 years down the road," he says on the Money Confidential podcast. "And these are things like a roof, a new HVAC system, a new hot water heater, updating electrical and plumbing and repairing siding, all of these things that you may not think about today."

(Read the full transcript here.)

Even if these items aren't immediate needs, Scott says it's a mistake to leave the financial planning to your future self. "If you're smart, what you're going to think is, 'OK, this roof is going to last me 20 years. In 20 years I'm going to have to pay some amount of money to replace the roof,'" he says. "Do some investigation. You find that replacing that roof would cost about $10,000. So instead of thinking, 'I'm going to pay $10,000 in 20 years,' think of it in terms of 'I'm paying $500 per year,' or you can even say, 'I'm spending $40 per month to replace this roof.' And you can do that with each of the major components."

Saving up for these future repairs—like the roof, an HVAC replacement, new water heater, etc.—could come down to around $100 a month, Scott says. "Start saving a hundred dollars a month today, so that as those items come due, as those repairs needed to be made, you have a reserve account that you can use to pay for those things," he says.

For more budgeting guidance, Collins recommends that homeowners refer to the 28/36 rule, which advises that homeowners' housing expenses should be no more than 28 percent of their annual income and no more than 36 percent of their total debt. To keep within those guidelines, it's important to factor in the cost of maintenance and repairs to your overall housing costs. Collins also recommends, as many financial experts do, that homeowners save and set aside 1 percent to 3 percent of their home's purchase price each year for home maintenance and repairs. "[It] can sound like a lot of money upfront, but if you don't have it [when an issue arises], even just having to take out loans in order to fix a broken pipe or something like that can mean you're suffering [financially] for a much longer time," she says.

How to prevent unexpected repairs

Aside from doing routine maintenance when you're in a home, one of the best ways to prevent unexpected repairs is to get a proper home inspection done before you ever close the deal on a new house. While the seller will often have an inspection done, Collins recommends that buyers also hire their own inspector to be really clear about the condition of the home.

"A lot of times homeowners focus much more on the surface-level items and cosmetics, and what you really need an inspector to do is to understand what's underneath the cosmetic items," she says. "Major foundational issues, inner wall issues, like major structural issues, are by far the most important thing for an inspector to catch and for a new homeowner to see, because [buyers] aren't going to see inside the walls."

And inspection can also help you be more aware of the timeline for when you'll need a repair and how much time you have to save for it. "You need to be aware when you're buying the house, which of these items are near being needed and factor that into your purchase," Scott says. "So if you have an inspection and the inspector says the roof only has two years left, well, maybe that's time—if you don't have the cash reserves, maybe before you close—to negotiate with the seller."

In this case, Scott says the buyer could go to the seller and ask them to put money in escrow to essentially pay for the new roof, saying, 'Let's put it in the contract that I'm going to pay you $10,000 more, or we're going to subtract $10,000 off the purchase price.' Then, when the roof needs replaced in a couple of years, the buyer can use that money to pay for it.

"The key isn't necessarily to avoid those costs, and the key isn't to save up all the money
really quickly," Scott says. "The key is to anticipate it and have a plan."

How to budget for an old home

While an older home might have a lower upfront cost, the additional repairs and maintenance needed can really add up. So while many experts use 1 percent of the home's cost as a good starting point for maintenance budgeting, it's better to save closer to 3 to 4 percent annually for an older home, since the annual upkeep costs will likely be higher. These costs can also increase based on the exact age and size of the home you purchase, so it's important to do your research to get a better understanding of how to budget for your exact home.

What to do if you didn't budget for a costly repair

Planning ahead, protecting yourself with homeowner's insurance, and budgeting for repairs is the ideal. However, if you're already in your home and find yourself confronted with a major repair that you can't afford, there are still options for you.

For starters, Collins recommends evaluating the repair and determining if it's a DIY solution, or if you need to call on professional services. While there are some projects you probably shouldn't try to tackle on your own—like roofing issues or electrical wiring—you can save money on some projects by researching solutions online and doing your own handiwork. Even if you can't do a repair on your own, Collins suggests researching replacement items or materials and seeing if it would be more cost-effective to buy your own materials, rather than having the professional provide them.

Once you've done some research and evaluated what needs done, Collins recommends looking into government-provided financial assistance to help cover the costs. "Should a major repair be entirely out of budget, there are programs that offer loans to help cover the cost of the repair, such as 203(k) Rehabilitation Mortgage Insurance Program and Section 504 Home Repair Program," she says. She's also a fan of startups like Renofi, which help provide renovation loans based on the future projected value of your home, rather than the current price.

Whether you're planning to buy your first home or are already settled into one, don't leave your finances up to fate. Be proactive and plan for home maintenance and repairs now.