​Planning Major Home Repairs? 5 Tips for Financing

When you buy a home, you know that you should prepare for unexpected maintenance expenses - but the first time you’re faced with a serious plumbing problem or roofing issue, you might wonder how you should finance the cost of repairs. Even routine repairs can stick you with a hefty bill. But maintaining your home doesn’t have to leave you with debt. When it comes to paying for home repairs, the average homeowner has several options. Here are a few ways you could foot the bill for maintenance costs. 

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Starting From Scratch?
Before you start searching for contractors and making plans for repairs, you may want to consider starting from scratch and rebuilding entire sections of your home, or moving forward with a brand-new custom build. If you live in an old home that frequently requires repairs, this may actually be the most fiscally responsible decision. And sometimes, you simply have to admit that your home just no longer suits your family’s needs.
Compare the costs of extensive repairs to tearing down and building new construction, and see which plan would cost you less. Before you draw up your budget, get in touch with local builders to get an accurate idea of the scope of the work. You may also need to consider the cost of temporary, alternative living arrangements.

Home Repair Fund
All homeowners should have an emergency fund exclusively for funding home repairs. If you can withdraw from this account to pay for repairs, it is the easiest way to cover the costs of materials and labor. 
How much should you keep in this type of account? This depends on the cost of your home, but generally, you should anticipate spending anywhere from 1% to 4% of your home’s value on maintenance annually. If you want to make regular contributions to an emergency fund, The Balance recommends automating your savings, opening a high-yield account to earn more interest, and putting any windfalls into this account. 

Home Equity Line of Credit
You may choose to take out a home equity line of credit to pay for home repairs. According to Zillow, a “HELOC” is basically a type of mortgage loan. You can take out a HELOC to get access to your home’s equity when necessary. You’ll have access to a predetermined maximum line of credit, and you can use the money to pay for repairs. 

You will be billed based on what you spend. To qualify for a HELOC, lenders will want to see that you have a good credit score. 

Cash-Out Refinancing
It’s easy to confuse taking out a HELOC with cash-out refinancing, but these are two different methods for financing home repairs. 
Let’s say that you’ve been responsibly paying down your mortgage, and your property value has steadily increased. You may be able to use this to your advantage. If you choose cash-out refinancing, you can essentially convert your home’s equity into cash, which you can then spend on repairs. Talk to a financial advisor to see if this option is right for you. 

Choosing Affordable Contractors
When it comes to hiring contractors, you get what you pay for - but this doesn’t mean you need to overspend. If you want to keep home repair costs manageable, you’ll need to hire contractors who are charging fair prices for their work. 

In order to stay within your budget, you should take the time to speak with several different contractors. Inquire about their hourly rates, ask for examples to see the quality of their work, and figure out who is charging the most reasonable prices. Dealing with an emergency with no time to spare? Get a reference from a trusted loved one who can point you to a reliable contractor. 

When you become a homeowner, you need to be prepared to deal with emergencies. Some homeowners will keep liquid cash in an emergency fund, while others would prefer alternative financing methods. By staying informed about all of your options, you can make the most responsible choice for your household.