How to Hatch a Financial Plan for Extensive Home Repairs
For most people, buying a home is the largest investment they will ever make. There are a variety of well-known costs that come with being a homeowner, such as mortgage fees, a down payment, and closing costs, among others. However, the costs don’t stop there, and many homeowners are unprepared when the need for an unexpected repair surfaces.
If you’re a homeowner for long enough, major home repair projects will eventually come your way. Whether you have a damaged roof, burst pipe, failing foundation or any other kind of extensive repair, it’s essential to prepare so that you’re not blindsided by a hefty bill. Here are some quick tips on how to budget and pay for unexpected repairs.
Save for It
The best way to pay for the big repairs that come out of nowhere is to have the money ready. That may sound obvious, but a lot of homeowners neglect to save for repairs, and they’re met with serious financial stress when the need for a repair arrives. However, it may not be as difficult as you expect to save enough money to cover a good portion — if not all — of a major repair. Start an emergency fund that’s only used for home repairs, and put 1 percent to 3 percent of your home’s value in the fund each year. Therefore, if your home is valued at $515,000, you would save $5,150 to $15,450 each year for future repairs.
Borrow Interest-Free from Friends or Family
Unfortunately, there might be times when you haven’t saved up enough money to cover the whole repair — or maybe you need a repair now, and you haven’t even started your emergency fund yet. Don’t worry — you still have options. For instance, consider asking a family member or friend to lend you the money for the repair. That way, you probably won’t have to pay interest, and you will be able to agree on a timeline for paying them back.
Use Cash Out Refinancing
If asking friends or family is not an option, look into cash out refinancing. This type of refinancing allows you to take advantage of the equity in your home and receive cash that you can use for repairs. In short, a cash-out refinance will provide you with a new home loan with a higher balance, and you will get the difference between the old loan and the new loan in cash.
Find a Low-Interest Loan
Another option is to look into the various loans you can get for major home repairs. It’s easy to apply for personal loans or home improvement loans online, and many of them start at under 5 percent interest. Yes, it does involve interest, but at least you won’t be shelling out upwards of 30 percent interest by using a credit card to finance your repairs.
Hire a Good Contractor
Finally, finding the best contractor for each project is essential. You want to hire a contractor who is well qualified and fits within your budget. Don’t just go with the first one you find; interview several candidates and get estimates from each of them. Also, look at the previous jobs each candidate has done and make sure anyone you’re considering is licensed and insured. Then you will be ready to make an informed decision and save yourself from potentially wasting money by hiring the wrong person for the job.
Knowing what to do is half the battle when you find out your home needs a major repair. Start putting money away for emergency repairs now, and consider whether borrowing from friends or family is an option. Also, explore cash-out refinancing and personal loans before you pull out the credit card. Lastly, get a good contractor. A little preparation will go a long way in mitigating the stress that can come from extensive home repairs.