How much will you need to spend on home maintenance? It's a crucial thing to know when figuring out what you can afford when taking out a mortgage to buy a house, but one that many potential homeowners pay shockingly little attention to.

How much will you need to spend on home maintenance? It's a crucial thing to know when figuring out what you can afford when taking out a mortgage to buy a house, but one that many potential homeowners pay shockingly little attention to.

Too many homeowners take a casual approach to budgeting for home repairs, figuring they can tighten their belts when occasional expenses like replacing the dishwasher pop up or borrowing for major expenses like replacing the roof or septic field. But that can lead to disaster, particularly in today's credit markets, when you can no longer count on simply tapping a home equity loan to cover major repairs.

These days, you want to be sure you can cover at least part of the cost of a major repair yourself, to improve your chances of being able to borrow the balance to cover a major repair. Other credit options, including borrowing against a credit card, may still be available, but are going to be much more costly than a few years ago, particularly if you take longer than a year to pay them off.

Figure on 1 to 4 percent of home value per year

So you want to go into a home purchase with the ability to handle most home repairs on your own or with minimal borrowing. How much should you count on? While it depends in part on how old or well-built your home is, the general rule of thumb is that you should expect to spend about 1 percent of your home price on maintenance costs each year, although some put that figure as high as 4 percent.

The four percent figure is generally going to be for someone who's seeking to keep their home in pristine condition - frequent repainting, replacing carpet before it looks worn, upgrading appliances before they completely give out. However, even 1 percent of your home value each year is going to be equal to about two month's mortgage and interest payments, depending on your interest rate - or about one-sixth your annual mortgage cost, not including taxes and insurance. So looking at it that way, it's still a major cost to account for.

Life expectancies, typical repair costs

Though it's difficult to predict exactly when you'll need to replace or repair major appliances or household systems, the National Association of Home Builders has published report on typical life expectancies for many home components. Although the list tends to be a bit conservative, seemingly listing the minimum life expectancy one should expect from a given system or appliance, it is useful for estimating the relative life expectancy of certain home components.

Freddie Mac, the government supported mortgage lender, used to publish a list of expected repair and replacement costs for many home elements and appliances, but no longer does so. However, some writers have taken it upon themselves to update the list; one such list is available here.

Of course, home maintenance is not a constant expense - costs will vary from year to year. In some years, you may spend very little on needed maintenance, then find you need a new roof or septic field the next. Though there are general guidelines such as those above for the life expectancy of household appliances and systems, you never know exactly when something is going to give out, so you need to be prepared.

Set up a home maintenance fund

For this reason, it's a good idea to set up a home maintenance fund you can tap into as needed, rather than trying to modify your regular budget when repairs occur. Setting aside 1 percent of your home value per year will at least cushion the blow when a major repair is needed and should enable you to cover most ongoing expenses such as exterior painting and replacing the occasional water heater, dryer or other appliances.

It's also a good idea to go into a home purchase with a reserve on hand, about 4-5 percent of the purchase price, in the event an unexpected major repair or assessment (like if the city decides to replace your sewer lines) crops up in the first few years. And if your ongoing repairs end up costing significantly less than your accumulated reserve fund after 10 years or so, you can always put some of it into other investments or a major home improvement you otherwise might not have been able to do.

Problems with deferring "optional" maintenance

As the above suggests, maintenance costs depend in part on what type of condition you're going to keep your home in. While some things, like a dead furnace in the middle of winter, will require immediate attention, other things, like replacing a battered garage door or painting the exterior, don't have to be done immediately but will require attention immediately.

There's several problems with deferring "optional" maintenance. For one, the problems just get worse. For another, deferring maintenance in some cases will end up costing you more over the long run as neglected repairs cause other problems to worsen, such as a leaky roof that leads to water damage on your ceilings, or an unsealed driveway that develops bigger cracks every winter. Finally, other needed repairs will pop up while you're deferring maintenance on the original items, meaning your to-do list just gets bigger, more expensive and less manageable.

You're probably heard about how home improvements can enhance the value of a home by adding an extra room, a deck or a finished basement. Neglected home maintenance is just the opposite - by not spending money on needed maintenance projects, your home value will go down, even though you appear to be saving money on the projects themselves. But you're losing value over the long run.

Published on October 19, 2009