Don't Buy an Older Home Without This

Give yourself the best possible chance to succeed.

Owning a home is something many people aspire to, and with good reason. If you're used to renting and having to follow someone else's house rules, which change as you move around to escape climbing rents or accommodate your work situation, the thought of taking out a mortgage loan to buy a home is an appealing prospect.

But while you're organizing your finances and improving your credit to get the best possible deal on that mortgage, and starting to look at real estate listings, take a moment to truly contemplate all the costs you'll be faced with when you own a home. Homeowners insurance, property taxes, and maintenance will all soon be yours to pay for.

If you're looking to buy an older home in particular, that last cost should really give you pause. There's no way to know for sure how much you'll have to pay for maintenance and home repairs that pop up along the way, especially in your first few years of owning that home. Here's why going into homeownership with a robust home maintenance fund is a good idea.

A cautionary tale

I have friends who purchased their home in 2019. The house was built 150 years ago, which might be very old indeed in some parts of the country, but we have a lot of Victorian-era homes in our area. Some of them have been bought, improved, and resold by house flippers, which was the case for this home. Some of the fixes and upgrades made to the house are quite nice (especially the new windows), but unfortunately, the flippers neglected to put money into some of the vital systems that keep the home running.

My friends have now been forced to go into debt on a few major repairs to their home, including a $3,000 plumbing fix just a few months after moving in, and more recently, $800 for a part for their furnace (which is coming to the end of its useful life and will need to be replaced altogether before next winter). The furnace died on them over the Christmas weekend, which was also the coldest part of this winter, so far. They were in another part of the state for the holiday and came home to a cold house -- and a need for several space heaters. A bill like that is not a Christmas gift anyone wants.

How a home maintenance fund could've helped

While there's often no way to tell in advance what kind of repairs an older home will need (I'll note that neither of the problems my friends have encountered came up during their home inspection), having a pot of money set aside for emergency maintenance costs is a really good idea if you can swing it.

If you're purchasing new construction, you can certainly breathe a little easier when it comes to worrying about components of your home breaking soon after you move in. You'll be receiving a home with all new appliances and systems like plumbing and HVAC, and some of them may even come with a warranty from either the manufacturer or your builder.

You won't get this benefit when you purchase existing construction, and the possibility of expensive repairs increases if you're purchasing a home that's a century old (or older). You won't know how well cared for the home has been in the past. While a home inspection ahead of closing on your mortgage can give you some clues about what might need to be replaced sooner rather than later, you might end up in the dark about some potential problems.

How much should you save?

In general, it's a good idea to plan on spending 1% of your home's cost per year for maintenance and repairs, but you could end up spending much more if you're buying an older home. Aim to save at least that 1% going into a home purchase, and more if you can manage. You can keep it in a dedicated "bucket" in your high-yield savings account, so it's ready for you when you need it.

I'm hoping to buy a home in this city of older houses in the near future, and the lesson I've taken from hearing about my friends' experiences is that I need to have money saved to address anything that could come up in my first few years of homeownership. In fact, being ready for repair costs is one reason why it's a bad idea to pay cash for a home, as you'll often be locking up all your available money in the purchase itself.

If a home purchase is in your future, don't forget to plan for potential maintenance and repair costs -- and save up money to help cover them, so you can avoid going into debt.