How a Home Improvement Fund Can Turn Your New House into a Home

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If you’re about to buy a home, you’ve probably saved 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 house, you also own its chipped wallpaper, aging water heater, and carpet that the previous owners’ pets hung out on. A home improvement fund can help ensure that your newly purchased home is a comfortable, well-functioning home.

Here’s why home improvement savings are a must for homebuyers and how to build your own.

Repairs and updates are inevitable

A home inspection identifies what repairs the home needs now or in the future, giving an indication of the expenses you might incur.

If the inspection reveals significant issues, your real estate agent may recommend asking the seller to pay. But in places where housing inventory is tight and sellers have the advantage, buyers will likely have to cover those costs, says Bryson Lefmann, a real estate agent based in Richmond, Va.

If the seller can choose between a buyer who asks for extra money and one who doesn’t, says Lefmann, “the seller is obviously going to choose an offer where the buyer has made significant concessions.”

Even if the inspection is relatively clean, surprises can still arise.

Ethan Miller purchased a home in Silver Spring, Maryland in early 2021. His home inspection was done during the winter, so the air conditioner was not tested. On the first hot day of the year, the Certified Financial Planner discovered he needed to replace it.

“I rarely talk to a customer who, in their first year of homeownership, hasn’t had a major repair or an unexpected replacement,” Miller says.

Raquel Obumba, chief broker at Millennial Properties Realty in Atlanta, recommends first-time buyers go for a year home warranty. For an annual fee, plus a service charge for each repair, a warranty covers devices and systems that home insurance can’t cover.

She also recommends homeowners save money for surprises that aren’t covered by the home warranty. These can include issues found during inspection and improperly installed items.

Cheap financing options are limited

The first few months of home ownership aren’t the best time to finance a repair, Miller says.

New homeowners may not have enough equity to borrow, which rules out low-interest loans and lines of credit, Miller says. Without them, cheap financing options are limited.

Personal loans can help in an emergency because they are often funded within days of approval. Rates range between 6% and 36%, which Miller says is high compared to equity financing, but can be lower than a regular credit card.

A zero rate credit card offers free financing if you can pay it off within the typical promotional period of 15 to 18 months. Otherwise, you will pay the normal rate for the card once the promotion ends.

Borrowers with high credit scores generally qualify, but Miller says a recent home purchase could drive up your rate.

“If you just took out a mortgage, your credit report shows you’re the most in debt you’ve ever been in, so you won’t get the best interest rate,” he says.

Even if you’re in a hurry, it’s worth it compare financing options to find the cheapest.

Work expenses in your plan

Here’s how to plan home improvement expenses before and after you buy.

Set a budget: Decide on your budget for updates before you start home shopping, Miller says, and share your limit with your real estate agent. That way, if you’re excited about a house that needs a lot of work, the agent can remind you of your budget.

Consider down payment assistance: Search the premises government assistance programs that can help with buying a home, says Obumba. For example, down payment assistance could allow you to allocate more savings to upgrades.

Build your emergency fund: Financial experts recommend saving three to six months of expenses for an emergency fund. Once you’ve purchased 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 enters the home, Lefmann says. When buying a home, you may not want to compromise on certain things, like location, but expect to make concessions elsewhere if priorities change. This can mean that more ambitious upgrades take a back seat.

This article was written by NerdWallet and was originally published by The Associated Press.

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