How to pay for emergency home repairs

Emergency home repairs are more common than you might think, which is why emergency home repair loans are readily available to help ease the burden.

There are a variety of home repair loans that you can apply for today to get your home back in good shape.

How much do routine home repairs cost?

HomeAdvisor’s most recent Housing Expense Report found that homeowners performing emergency repairs spent an average of $ 1,640 in 2020, an increase of $ 124 from 2019.

Discover recommends budgeting 1% of your home’s value for home maintenance each year. That would be about $ 3,000 a year for a $ 300,000 house.

Additionally, a study by Porch found that the national average cost of maintaining a home – including routine chores as well as repairs – is just over $ 16,000.

Costs will also vary from year to year depending on the work required and the availability of labor and materials. You might find your house needs a new roof, or come home one day to find that a burst pipe has caused thousands of dollars in damage. The bottom line is this: Just because you didn’t spend a lot of money on home repairs one year, doesn’t mean you shouldn’t anticipate more the next year.

Ways to finance emergency home repair

It’s easy to budget for routine home maintenance and planned repairs, but when urgent home repair needs arise, do you have a plan in place to cover the costs?

Check out these options that help fund home repairs relatively quickly to see which one is best for your situation.

Home insurance claim

If the repair is truly an emergency, you may not have time to wait for a home insurance claim to be processed and paid. However, if you choose to proceed with filing a claim, make sure that the repair is actually covered by your policy.

“Often times, major disasters may not be covered,” says Michael Foguth, founder and chairman of Michigan-based Foguth Financial Group. “You should also consider your policy deductible before choosing this option. “

If you don’t have the cash on hand to pay a high deductible, a home insurance claim might not be right for you. Also, if the cost of the repair is less than the deductible you are required to pay under your policy, this option may not make sense.

Personal loan

For emergency home repairs with a small to medium price, a personal loan makes perfect sense for home repairs. They are easy to find and are available from most banks, credit unions, or online lenders. You can usually get approved quickly and have the funds available the next day.

“Applying for a personal loan is less complicated than applying for a mortgage or home equity loan; you just need to show proof of income and employment, ”says Cruz. “As long as you have a good work history and can repay the loan, you should be able to qualify. “

If you take out a personal loan to cover emergency home repairs, you will want to make sure your credit score is in good shape, or you may have to pay a higher interest rate than with others. types of home repair loans. If you are someone who is struggling to repay their loans on time, think carefully before proceeding with this option.

Home renovation loan

You can use a home improvement loan, which is a type of personal loan, to cover the cost of everything from upgrading and renovating a property to paying for emergency repairs.

“Home repair loans are generally unsecured, so you won’t need to use the equity in your property as collateral to qualify,” says Juan Carlos Cruz, founder of New York-based Britewater Financial Group. . “Once you’re approved, the lenders will deposit the money within a few business days. These loans are generally calculated on a shorter repayment schedule, with terms ranging from 24 to 60 months. “

The amount of financing you are eligible for will depend on your credit profile. Because home improvement loans have fixed interest rates, your monthly payments will stay the same throughout the life of the loan.

Home equity loan

Home equity loans are commonly used as home repair loans because they are secured by the equity you have built in your home and are available for larger sums than personal loans. This type of loan is given as a lump sum amount equal to a portion of the equity in your home and is best suited for major repairs that will cost $ 10,000 to $ 35,000 or more, as most financial institutions do not ‘will not offer a home equity loan for less than This amount.

“With this option, borrowers get a lower fixed interest rate because it is a secured loan, which means you have to put your house as collateral for the loan,” says Matt Lattman, vice president personal loans from Discover. “The benefit is a predictable, manageable repayment that can help restore your home’s value at the same time. “

However, to take out a home equity loan, you typically need at least 15 to 20 percent of your home’s equity to borrow, which may not be the case if your home was a recent purchase. You also need to make sure that you can afford to repay your loan otherwise you risk losing your home since this type of loan uses your home as collateral.

Home equity line of credit

Home equity lines of credit, or HELOCs, are also borrowed against the equity in your home and use your home as collateral to secure the loan. The difference is that you get a line of credit with a limit that you can borrow multiple times rather than a lump sum like with home equity loans.

The flexibility of HELOCs gives you more control over how much you borrow and pay back, which comes in handy if you’re facing a major emergency project with unpredictable costs.

“HELOCS can also come with a fixed interest rate option that is typically lower than a personal loan or home repair loan,” says Cruz.

The minimum draft for a HELOC, however, is still generally between $ 10,000 and $ 25,000, so this is only a good home repair loan option for larger projects. It will also only work for people who have built up enough equity in their home to borrow.

Government loan

The Department of Housing and Urban Development provides emergency loans for home repair from private lenders, called Title 1 Home Improvement Loans. Loans are good for repairs up to $ 25,000. for single-family homes and up to $ 60,000 for multiple-unit homes. You are not required to have equity in your home, although you must have occupied it for at least 90 days, and you must meet other loan requirements to qualify.

Credit card

When minor emergency home repairs arise, it may be a good idea to use a credit card that you already have to pay for the expenses. Be careful using a credit card as interest can be high unless you are still in an introductory period with a low APR.

You’ll want to make sure you can pay off the balance immediately, or you’ll end up drowning in interest payments. The exception, of course, is if you’ve just applied for a new credit card to take advantage of an interest-free introductory period.

“If you can’t wait for an insurance claim or loan funds, a credit card might be your best option,” says Foguth. “However, if you absolutely must use a credit card, use one with the lowest possible interest rate.”

Should I Get a Home Repair Loan?

Home repair loans, such as personal loans or home equity loans, can be a good option for those in need of emergency repairs who don’t have the cash readily available. Having access to these options in no time can provide peace of mind.

“Many problems get worse as they go unanswered, both in terms of severity and consumer well-being,” Lattman says. “Having unexpected expenses around the house can be extremely stressful, and using savings isn’t always an option. A personal loan can allow you to do the work you need right now while making predictable payments over time without immediately dipping into your savings.

However, the key is to make sure that you get the right kind of financing for your needs so that you don’t unnecessarily increase the cost of your project in the long run.

If you only need a small loan and have a good credit rating, an unsecured personal or home repair loan may be the right choice for you. If you need major work or repairs, you might be better off getting a HELOC loan or home equity loan.

Next steps

Emergency home repairs are stressful, but not the end of the world. There are many financing options and emergency home repair loans that suit most budgets. Be sure to do your research and compare financing options to get the best interest rates and determine which financing approach makes the most sense for you and your financial situation.

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