Over the past year, nearly half (47%) of all homeowners had to bear unforeseen repair costs to their homes. Home repairs are often one of the most overlooked costs that come with home ownership and planning for these costs ahead of time can help homeowners save thousands of dollars.
Jean Chatzky, a leading personal finance expert in the industry, CEO of HerMoney.com and host of Everyday Wealth, a new radio show and podcast presented by Edelman Financial Engines, says some of the most common expenses encountered by new owners are important: air conditioning, plumbing leaks, water heaters and refrigerators. According to Harvard University’s Joint Center for Housing Studies, homeowners should plan to spend 1-2% of their home’s value each year on maintenance.
“I don’t think people think enough about what it will cost to live in a new home beyond property taxes and insurance.” Chatzky said. She believes one of the best ways to avoid unexpected costs starts with the home inspection, which people often wave during the past year’s home-buying frenzy. “If you do the inspection correctly and walk with the inspector, the hope is that you will come away with a roadmap of things that need to be fixed.” That doesn’t mean a broken puck should necessarily be a deal breaker, but at least you know what the expense will be in advance and can try to negotiate accordingly from the get-go.
Chatzky points out that the cost of a new home isn’t just about the list price, it’s also about the new lifestyle. She recommends being thorough before buying a new home and doing a thorough analysis of how much you’ll need to buy and how the move affects your lifestyle. How much will you need to spend on furnishings and what do you need to replace? How is the home-to-work journey changing? Going from one car to two? Each of these expenses and modifications is part of buying a home. She also suggests asking a friend whose home is similar to your potential purchase to find out their home budget. Ask them what they spend on gutters, home maintenance, snow removal and monthly utilities. This will help give a realistic picture of your upcoming expenses and the true cost of your home.
Once you’ve settled into your new home, a key way to minimize expenses is to be proactive and purchase a home warranty. A warranty for your home is an annual renewable service contract that provides protection in the event of a covered breakdown. Home warranties like those offered by American Home Shield can reduce the cost of repairing or replacing many systems and appliances in your home that could cost thousands of dollars if they fail. Chatzky says one of the biggest benefits of a home warranty is the network of service providers you can access in the event of a breakdown.
Finally, if you’ve already bought a home and are now stuck with more expenses than you can handle, Chatzky says there are things you can do to ease the expense. First, she says that the first few months of spending may not be representative of your average household spending in the future. But if after a few months you still feel drained, she recommends tracking your spending. “You may now be spending more on food and ordering more often. Or you may notice that you’re driving more and may try to minimize trips out of the house. Go back and look at where all your money is going and you can see where you can start making changes.
Listen to Everyday Wealth’s podcast “An Economist’s Perspective on What’s Happening Today” for more homeownership tips and insights.