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