Private mortgage insurance (PMI) can be an expensive requirement for your home loan, as it adds more to your monthly payment costs. This is a safeguard that your lender will take out to cover a portion of the amount you borrowed in case you default. Up Next: P.I.T.I.: Understanding The Parts Of Your Mortgage Payment […]
Why You Need An Emergency Home Repair Fund
Emergencies happen when you least expect them. Perhaps you need plumbing repair or a tree landed on your roof during a storm. Whatever the case may be, have you given any thought to how you will cover these costs?
As a homeowner, when you create your homeownership budget, you should factor repairs and emergencies into the equation. Having an emergency home repair fund will save you a lot of worry and help keep your finances secure.
General Repair Funds To Cover Basic Home Needs
For repairs like a new boiler or a repair on your air conditioning unit during a hot summer, having a general repair fund can help cover these costs. The general rule of thumb is to save at least 1% of the home’s purchase cost.
So if you home costs $150,000, you should budget at least $2,000 per year. It is important to remember that this is a recommendation. Where you live, how old the home is, and other factors can affect how much you will need to save.
Funds For Dire Emergencies
When the unexpected happens, like a tornado or flooding, having a second emergency repair fund for will be a lifesaver. If you do not have funds available to cover these costs, you could be at risk of losing your home. This fund can also help in non-home repair emergencies like the loss of a job, illness, or a death.
For dire emergency home repair funds, it is recommended to save an upward of 20% of your mortgage balance.
Options If You Do Not Have A Repair Fund
If you do not have an emergency repair fund and find your home in need of repairs, you do have some options to help cover the costs. You could use your home equity.
There are two ways you can do this:
- Home equity loan, which is a lump sum you borrow against your home and is paid in installments. This option is preferred when you know how much you will need to borrow.
- Home equity line of credit, which acts similar to a credit card in that you have a limit and can borrow on an as-needed basis over the term of the loan. Your lender will often issue you a card for easy access to these funds. This option is preferred when you are unsure how much you will need to borrow.
If you opt to use these options, use them responsibly. You do not want to borrow more than you can reasonably afford and lenders will often require a good credit score.