If you’re preparing to buy a home, you’ve probably been saving up for the down payment and other closing costs. But if that nest egg can only get you through the front door, it may not be enough.
Once you own the home, you also own its peeling wallpaper, aging water heater and the carpet on which past owners’ pets have traipsed. A home improvement fund can help ensure your newly purchased house is a well-functioning, comfortable home.
Here’s why home improvement savings are a homebuyer must-have and how to build yours.
A home inspection identifies repairs the house needs now or eventually, giving some indication of the expenses you could be taking on.
If the inspection finds significant issues, your real estate agent may recommend asking the seller to pay. But in locations where housing inventory is tight and sellers have the advantage, buyers will likely need to cover those costs, says Bryson Lefmann, a real estate agent based in Richmond, Virginia.
If the seller can choose between a buyer who’s asking for extra money and one who isn’t, Lefmann says, “the seller is obviously going to pick an offer where the buyer has made significant concessions.”
Even if the inspection is relatively clean, surprises can still surface.
Ethan Miller bought a home in Silver Spring, Md., in early 2021. His home inspection was done during the winter, so the air conditioner wasn’t tested. On the first warm day of the year, the certified financial planner discovered he needed to replace it.
“I rarely talk to a client who, in their first year of homeownership, hasn’t had a big unexpected repair or replacement,” Miller says.
Raquel Obumba, managing broker at Millennial Properties Realty in Atlanta, recommends first-time buyers opt for a one-year home warranty. For an annual fee, plus a service fee for each repair, a warranty covers appliances and systems that homeowners insurance may not.
She also recommends homeowners have savings for surprises that aren’t covered under a home warranty. These can include problems found in the inspection and incorrectly installed items.
The early months of homeownership aren’t the best time to finance a repair, Miller says.
New homeowners may not have enough equity to borrow against, taking low-interest home equity loans and lines of credit off the table, Miller says. Without them, inexpensive financing options are limited.
Personal loans can help in an emergency because they’re often funded within a couple of days after approval. Rates are between 6% and 36%, which Miller says are high compared with equity financing but may be lower than a regular credit card.
A zero-interest credit card offers free financing if you can pay it off within the typical 15- to 18-month promotional period. If not, you’ll pay the card’s regular rate once the promotion ends.
Borrowers with high credit scores usually qualify, but Miller says a recent home purchase could drive up your rate.
“If you just took on a mortgage, your credit report shows that you’re in the most debt of your life, so you’re not going to get the best interest rate,” he says.
Even if you’re in a hurry, it pays to compare financing options to find the least expensive one.
Here’s how to plan for home improvement expenses before and after you buy.
Set a budget: Decide your budget for updates before you start home shopping, Miller says, and share your limit with your realtor. That way, if you get excited about a house that needs a lot of work, the agent can remind you of your budget.
Consider down payment help: Look into local government assistance programs that can help with the home purchase, Obumba says. For example, help with the down payment could let you allocate more savings to upgrades.
Build your emergency fund: Financial experts recommend saving three to six months’ worth of expenses for an emergency fund. Once you buy a home, that fund should grow to support higher utility bills, a mortgage payment and maintenance, Miller says.
Leave room for plans to change: It’s not uncommon for renovation plans to change once a buyer gets in the home, Lefmann says. When house shopping, you may not want to compromise on some things, like location, but expect to make concessions elsewhere if priorities shift. That may mean more ambitious upgrades take a back seat.