October 31st, 2019 11:12 AM by Gregg Mower
For most people, purchasing a home is the single largest investment they will ever make. And while many are well-versed in paying a down payment, mortgage and insurance, a lot of homeowners are caught by surprise when faced with another expensive part of owning a home: major repairs. Owning a home comes with the inevitability of things wearing down over time or breaking suddenly, and rather than simply calling the landlord, the homeowner is responsible for paying the costs. If you own a home or are thinking about buying one, these tips can help you to prepare for the major home repairs that will come your way:
No matter who you are, paying for home repairs ideally will not land you up to your ears in debt. You may be tempted to pull out the credit card or delay paying other hefty bills (e.g., mortgage, student loans, etc.), but this can get you into a lot of financial trouble. The best way to handle major home repairs is to be prepared when they happen. Start an emergency fund that is dedicated solely to covering the costs of such repairs. This can either be done through a savings account with your bank or by keeping an old-school cash envelope at home.
Many experts suggest setting aside at least 1 percent of your home’s value each year for repairs and maintenance. For instance, if your home is worth $660,000, you would put $6,600 in your emergency fund every year. Such savings can quickly add up, leaving you in a better position to cover the cost of that roof replacement or plumbing disaster.
Refinancing Your Home
Another option for paying for a major repair is refinancing your home, which allows you to take advantage of your home’s equity. With cash out refinancing you can get a new loan for your home that has a higher balance. Then, you receive the difference between the two loans in cash. Thus, you can then use the cash to cover the cost of the repair. It’s also worth noting that the new loan could end up coming with more favorable terms than the previous one, making it a win-win situation. Here at MAE Capital we can walk you through this process.
Taking Out a Personal Loan
If you don’t have an emergency fund built up or refinancing isn’t an option, you could explore various types of personal loans out there. These days, it’s easy to apply online for a personal loan. Moreover, some loans even start at under 4 percent interest, and that’s much lower than using a credit card.
Selecting a Contractor
The contractor you use for each home repair can make a big difference in the time and money you spend. For example, if you choose a contractor simply because they offer their services for the lowest price, you could end up with shoddy work; this means you would then have to go through a lengthy legal process to get your money back or pay a different contractor to come and fix the bad repair.
To avoid a situation like this, be sure to ask around for referrals and interview several candidates. Check the licensing and insurance of each candidate, look into their job history, and get estimates for the work needed. Then, you will be ready to compare bids and qualifications to determine which contractor is best for the project. Furthermore, you will want to be sure to get a detailed contract in writing before any work has begun.
Homeownership comes with the costs of major home repairs, and it will save you a lot of stress and financial trouble if you have a plan when the day comes. Start contributing to an emergency fund today. Look into cash-out refinancing and personal loans to see if those options will work best for your situation. Finally, be diligent when choosing a contractor for each project.
Article by: Natalie Jones
Photo Credit: Pexels