Home Repair and Maintenance – What Are The Real Home Ownership Costs?

by Kevin Mercadante

When it comes to real home ownership costs, most people turn a blind eye to home repair and maintenance. In fact, a home repair friend was doing some work on my house and gave me this sobering factoid recently: “The average house costs $300 to $500 per month in repairs and maintenance. And that can add up to several months of additional mortgage payments.” This puts a very different spin on figuring out how much house you can afford Right?

I mean…this is kind of shocking. Repair and maintenance costs averaging $300 to $500 per month—as if housing wasn’t expensive enough. But is it true?

It ain’t all PITI

When preparing to buy a house, most people zero in on PITI—mortgage principal, interest, taxes and insurance. That’s the primary housing payment, and the number people pay most attention to. It’s the sole barometer of housing affordability.

As far as repairs and maintenance, most people are aware of it, but it hardly figures into the affordability equation.

Lenders do the same. Your house payment-to-income and total debt-to-income ratios are calculated based solely on your PITI payment, and repair and maintenance costs are virtually ignored.

Likely repairs and maintenance over any given 10 year period

I decided to do some investigating on my home repair friend’s claim of $300 to $500 per month on average repair and maintenance costs. Using a 2,000 square foot home, likely repair and maintenance items over a ten year period, and cost estimates based on averages from various sources, I came up with the following:

  1. Floor replacement (50% carpet, 50% wood floors), about $6,500
  2. Painting – interior $2,000, exterior $3,000, $5,000
  3. Replace home refrigerator, stove and dishwasher , $2,000
  4. Gutter cleaning, $100 x 2 times per year, $2,000
  5. Replace roof, $7,000
  6. Replace furnace OR air conditioner, $5,500
  7. Service furnace and air conditioner, annually at $250, $2,500
  8. Replace driveway, $4,000 (but varies widely based on size)
  9. Refinish kitchen cabinets, $2,500
  10. Replace a garage door, $1,200
  11. Replace kitchen counter tops, $3,300

These ten year costs total $41,500. Dividing this by ten years, we get $4,150 per year, or $346 per month. We can debate the components of this list, but even if you don’t do all of these over a ten year period you may do others not listed here, or find yourself doing some more than once. You may not replace your floors, for example, but you may end up replacing both your furnace and your air conditioner. If you paint the interior and exterior of your house twice, there’s another $5,000. And we haven’t even covered remodeling of entire rooms!

$300 to $500 per month sounds reasonable then. Maybe you won’t see that in any single year, but that’s about what it will average out to be over a decade.

The connection between deferred maintenance and foreclosure

Have you noticed that many of the people who have to deal with foreclosure have homes that show unmistakable signs of deferred maintenance? I think that repair and maintenance is an under estimated cause for foreclosures. Here’s why…

Mortgage lenders use the “28/36” rule—your basic monthly house payment shouldn’t exceed 28% of your stable monthly income, and your combined debts shouldn’t exceed 36%.

But let’s say that a couple purchases a home for $200,000 with a $1,400 per month house payment, $1,800 per month in total debt (including the house payment) with a $5,000 per month stable income. Based on the numbers, they fit exactly into 28/36.

But let’s add in $300 per month for repairs and maintenance; now 28/36 turns to 34/42. If we want to add in another $400 for monthly utilities, the couple is now at 42/50. In other words, they’re paying 42% of their stable monthly income just for housing. Everything else they need—food, non-housing debt, income taxes, health insurance, car expenses, entertainment and vacations—have to fit into the remaining 58% of their income. Sometimes they don’t.

Do you think that might have something to do with why so many people are in foreclosure? And when money’s tight, repairs and maintenance are the first things to go. That explains the foreclosure/deferred maintenance connection.

An excellent reason to buy less house than the bank says you can afford

One of the best ways to avoid financial traps like foreclosure and to keep a better handle on your budget is to buy less house than you can afford. Sure, the mortgage lender may allow 28/36, but as we saw above, they completely ignore repairs and maintenance.

When you buy a home, keep your ratios well below 28/36. Consider 20/28, that way you’ll not only have room to cover repairs and maintenance, but also other thoroughly predictable expenses like utilities. Just because the bank ignores certain costs doesn’t mean you should! After all, you’re the one who actually has to pay them.

At the same time, since you know that repairs and maintenance will cost real money and also about how much they will cost in the long run, carve out a place in your budget so you’ll be ready when they hit. And they will.

Have you considered the cost of repairs and maintenance on the cost of homeownership?

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{ 7 comments… read them below or add one }

peth October 31, 2012 at 6:22 AM

You forgot taxes, a good 500.00 a month. they are now included in mortgage payments but were not always included in the past.

Reply

Neal Frankle October 31, 2012 at 11:21 PM

Great point Peth. But Kevin is really talking about repair and maintenance. But your point is valid and I appreciate you bringing it up. My post on how much house you can afford might be helpful.

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Kevin@OutOfYourRut November 1, 2012 at 5:03 AM

Hi Peth–taxes are part of PITI–Principal, Interest, Taxes and Insurance. And you’re right they usually are included in your mortgage payment. Unless you make a down payment of 20% or more.

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Maggie@SquarePennies October 27, 2012 at 2:47 PM

I couldn’t agree more about how much house to buy. We took on a house payment that was 25% of our take-home pay, but 20% would be a good target. We’ve lived in our house for 35 years and had to replace the roof once (last year). My husband cleans the gutters, but I could see the value of getting those gutter guards so it wouldn’t need to be done anymore.

People we know who got in trouble with their mortgage were taking money out via refi’s and using it to do the types of replacement/upgrade items on your list. They kept up with maintenance and went beyond that with improvements. We didn’t do any of that unless it was absolutely needed. We were able to get these projects done under the average cost by getting a lot of estimates. It’s amazing how much you can save over the average cost that way.

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Kevin@OutOfYourRut October 29, 2012 at 5:36 AM

Hi Maggie–20% of income is a good target for a primary house payment. That not only gives you breathing room on the house payment, but it also leaves more money for savings that way you won’t have to borrow to pay for major repairs.

Also, the pattern you report of people borrowing to pay for repairs and upgrades has been very typical. It starts with home equity lines, that are rolled into new first mortgages, and before you know it, people owe more on their homes than they paid for them.

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Marc October 25, 2012 at 8:22 AM

We own a home and I believe home ownership comes at a premium. The transactional costs, maintenance costs (and time wasted), mortgage interest paid could make better returns elsewhere.

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Kevin@OutOfYourRut October 29, 2012 at 5:31 AM

Hi Marc–That’s true about better returns elsewhere. A house isn’t as good an investment as it was back in the days of double digit property appreciation. The real costs are hitting a lot harder now.

It might be best to not view your home as an investment. It does provide other benefits that aren’t investment related, and those should be the focus.

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