Ready for a Rainy Day Regardless of Budget: Paying for Emergency Home Repairs
It seems like major home repairs always happen at the worst possible time. The dishwasher leaks and floods the kitchen the day before you go on vacation, or your HVAC unit gives out two days after Christmas, always inconvenient and always costly. The obvious solution is to be prepared financially, but that’s usually easier said than done, especially when you’re on a budget.
Many people end up stuck with a hefty repair bill, frantically looking for some way to cover the cost of fixing or replacing something they can’t do without. A rainy day fund is a great thing to have in place, but if it’s not in the picture, you need to find some other means of getting it done. Here are a few ideas to bear in mind, some of which you may not have considered before.
Home Equity Line of Credit
If you’ve built up equity in your home, you may be able to tap into that asset to pay for a home emergency. Essentially, it’s a loan supported by the value of your home, money that should be spent on a true emergency. Be aware that a home equity line of credit equals the current market value of your house minus what you owe on the mortgage. If that comes out to a positive figure, you have equity that can be accessed for home repairs (or some other need). However, if you owe more on your mortgage than the house is worth, then you have no equity.
Homeowners Insurance
Always review your homeowners insurance policy in case an emergency home repair is covered under its terms. Sometimes, a portion of a repair may be covered, which will help defray some of what will probably be a very expensive fix. Don’t assume that something isn’t covered based on what something looks like. An expert, such as an insurance inspector, may be able to find evidence that would bring the entire cost under the terms of your insurance policy. Things like earthquakes, mold damage, and power outages are not covered by homeowners insurance.
Rainy Day Fund
A home emergency, or “rainy day” fund, is money you set aside in a conventional, interest-bearing savings account that you can access quickly and easily if the unexpected should happen. Plan to build up 1 to 3% of your home’s value in a rainy day fund, meaning if your house is valued at $300,000, you would want to have from $3,000 to $9,000 set aside.
If building up a rainy day fund is a tricky proposition, why not refinance your home to free up cash? Interest rates are at historic lows right now, and a refinance can put money in your pocket in several ways. If you opt for a cash-out refinance, you can tap into your home’s equity and use the money you get to make home repairs. Another option, though it’s specific to veterans, is an Interest Rate Reduction Refinance Loan. Also known as a streamline loan, a VA IRRRL can be a very quick process, though typically there is no cashing out of home equity. The trade-off is access to low VA IRRRL rates and extra money in your pocket every month.
Preventive Maintenance
Perhaps the best and most affordable way to maintain a home is through preventive maintenance on key components, such as your furnace, washer/dryer, dishwater, etc. By staying on top of maintenance, you’ll save yourself the cost (and stress) of a pricey repair. Consider keeping a yearly checklist and having set dates for when certain items are serviced. This can help correct an issue before it becomes a major problem.
Opt for a Better Fit
If your home feels like it’s constantly requiring maintenance or maybe just isn’t a good fit anymore, you can always opt to buy a new house. With the help of an experienced agent through (like our team!), you can find a newer home with features that allow you to focus on the more minor maintenance tasks associated with homeownership.
It’s in the nature of home emergencies to occur when you’re least prepared for them. Despite preventive measures, things can be relied upon to break down. If you lack reserve funds, always check your homeowners insurance policy and your home equity for possible payment alternatives.
Article Courtesy Of – Alice Robertson
