As a homeowner, your list of financial responsibilities extends far past your mortgage. You must cover homeowners insurance, property taxes, utility bills, homeowners association (HOA) dues, and routine maintenance costs.
But, sometimes, you also need to deal with more urgent situations – like emergency home repairs. These issues usually pop up when you and your wallet least expect them and can wreak havoc on even the strongest budgets.
We’ll share some insights into emergency repair costs and how to pay for home repairs. That way, when the inevitable happens, you’ll be prepared.
How much do emergency home repairs cost?
Emergency home repairs can be quite costly, with expenses varying depending on the nature and severity of the issue. The most expensive repairs can set you back as much as tens of thousands of dollars.
American Family Insurance (AFI) says that heating, ventilation, and cooling (HVAC) system repairs run up to $6,000, and the average new water heater has a price tag of over $1,000. The Federal Emergency Management Agency (FEMA) advises that just one inch of water in your house can cause $25,000 worth of damage. If your roof is beyond repair, a roof inspection and replacement can cost up to $27,000 – depending on the size of your home and the materials you select.
How to pay for home repairs
Homeowners insurance and warranty coverage
Depending on your situation, your homeowners insurance may pick up the tab for emergency home repairs. However, according to the Insurance Information Institute, your policy will likely only pay out if the property damage was caused by a covered event such as fire, hail, lightning, or hurricane. Generally, homeowners insurance won’t pay for earthquake or flood damage or normal wear and tear.
On the other hand, a home warranty does cover wear and tear. Depending on the specifics of your policy, your home warranty may pay to repair or replace your appliances or elements of your HVAC, electrical, or plumbing systems. Keep in mind, though, that the provider’s coverage won’t kick in if your appliances are still under a manufacturer’s warranty. The company could also deny your claim if you haven’t kept up with the required preventative maintenance.
Filing a claim under your home warranty is a straightforward process. Contact the warranty provider to schedule a service visit. The technician who comes to your house will advise you about your repair or replacement options based on their diagnosis of the problem and your policy details. You’ll have to pay a service fee for the technician’s time and cover any costs the warranty doesn't.
Filing a claim with your homeowners insurance company is a bit more complex. You should file your claim as soon as possible, as your policy may include a required timeframe for reporting damage.
Your insurer will need sufficient documentation to process your claim. Ideally, you have pictures of your property before it requires an emergency repair as a basis for comparison. You must submit a detailed account of the situation and provide photos or videos of the damage.
Be sure to keep a record of every conversation you have related to your claim and promptly respond to requests for additional information from your insurer. Doing so will give you the best chance of getting your emergency home repair paid for quickly and easily.
Pro Tip: If the expected cost to fix your home doesn’t significantly exceed your homeowners insurance deductible, you may not want to file a claim. Filing a claim will likely result in a higher premium at policy renewal.
Government assistance programs
There are many government grants and programs for home improvements and repairs. A few common solutions include:
USDA
The United States Department of Agriculture (USDA) offers single-family home repair grants and loans to qualified residents in eligible rural areas. If you’re over age 62, live in the home you own, and can’t obtain affordable credit, you may qualify for an up to $10,000 grant to remove health and safety hazards from your property. If you’re under age 62 but meet the other requirements, you may qualify for an up to $40,000, one percent interest, 20-year term loan to repair, improve, or modernize your house.
FHA
If you meet the requirements for a standard Federal Housing Administration (FHA) loan (no foreclosures within three years, a 500+ credit score, a loan amount within your county’s limit, and a downpayment of 3.5%+), you likely qualify for an
FHA 203(k) loan. An FHA 203(k) loan can help you pay to rehabilitate your property.
You can opt for a limited loan, which provides up to $35,000 for repairs. Or, you can select a traditional loan that covers up to 110% of the property’s appraised value.
You can also refinance your mortgage with an FHA 203(k) loan. The FHA 203(k) loan will pay off your first home loan and cover the required repairs.
While this program can help you get your home fixed affordably, getting funding can take a while. Money to pay for repairs gets released to you as the work gets completed by a licensed contractor.
The FHA also insures Title I improvement loans issued by private lenders. A Title I loan may be your best bet if you don’t need much money because you likely won’t need to put up any collateral for loans under $7,500. Plus, you may be able to secure funding within a few days.
Pro Tip: If the president has declared your area a disaster area, you may qualify for assistance through FEMA.
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Other home repair grants and loans
Depending on where you live, you may have access to other types of assistance, including zero-interest home improvement loans. Generally, zero-interest loan programs are administered by your local government or a non-profit organization.
Qualification criteria vary based on the specific loan program but may include the following:
- Senior citizen status
- Low income
- Poor credit
- Residence within a particular area
- Home value under a designated limit
You may also need to be current on your property taxes and have sufficient home equity.
Pro Tip: Check out the National Residential Improvement Association for other government-sponsored assistance programs in your area.
Personal loans
You can take out a lump sum personal loan for nearly any purpose – including emergency home repair. A personal loan could be a good fit for your situation if you have decent credit and the means to repay the debt. (If your credit score is poor, you may have to pay a higher interest rate or need a co-signer to get approved.)
Personal loans generally feature a fixed interest rate, so your monthly payment will stay the same throughout your repayment term (usually up to five years). Plus, unlike home equity loans or HELOCs, personal loans are typically unsecured, which means you’re not at risk of losing your home if you don’t pay.
Be sure to shop around for the best personal loan before committing. Compare interest rates, origination fees, repayment terms, monthly payments, and other details.
Credit card
A credit card may be the right financial product to cover emergency home repairs in certain situations. For instance, if you already have an account and need to fix something immediately, you can buy the equipment and materials required or pay a service provider to take care of it today.
Using a credit card might also make sense if you can take advantage of a low or no-interest promotional period. Home improvement retailers often offer in-house credit cards with interest-free financing for a certain number of months if you spend more than a specific amount. Major credit card issuers also offer cards with a zero percent promotional annual percentage rate (APR) for up to 21 months.
While practical, credit cards can be a slippery slope for some borrowers. In addition to impacting credit scores, the high interest rates and ease of use increase the risk of over-borrowing and going into debt.
Pro Tip: If you don’t use a card with low or no interest, try to pay off your balance as quickly as possible to save money.
Home equity loan
If you’ve owned your house for a while, you may be able to pay for emergency home repairs via a home equity loan. Your home equity is the value of your house, less what you owe on your mortgage. For example, if your property is worth $500,000, and you owe $300,000 to your lender, you have $200,000 in home equity.
Generally, you’ll need to have at least 15% equity in your home and good to excellent credit to qualify for a home equity loan. However, some lenders offer home equity loans to borrowers with bad credit.
Like personal loans, home equity loans are issued as a lump sum and generally feature a fixed interest rate. However, home equity loan interest rates hover slightly above standard mortgage interest rates, which means they may be lower than personal loan interest rates.
Unlike a personal loan, a home equity loan is secured by your property. So, if you default, you could risk losing your house to foreclosure.
HELOC
A home equity line of credit (HELOC) can also help you access your equity for emergency home repairs. However, you'll receive a line of credit instead of a lump sum of cash. Like a credit card, you'll only have to repay what you spend.
During the draw phase of a HELOC, you can use your line of credit to cover your repair expenses as you need. You'll only need to pay the accruing interest. However, once you enter the repayment phase, you can no longer use your line of credit.
You must make full principal and interest payments for the remainder of the term (or until you pay off the debt). HELOCs have variable interest rates, which means your monthly payments may fluctuate.
If you know how much money you need to repair your home, the predictable monthly payments of a home equity loan may work for your budget. However, a HELOC is a more flexible financial tool if you're unsure of the potential costs.
Home equity investment (HEI)
If you don't qualify for a home equity loan or HELOC or don't want to add another debt payment to your monthly budget, there's a third way you can tap into your home's equity: a home equity investment (HEI). With an HEI, you can get a lump sum of cash in exchange for some of your property's future appreciation.
Unlike most HELOC and home equity loan products, there is no income requirement or need for perfect credit to qualify for an HEI. You'll need sufficient equity, a credit score above 500, and a home in an eligible location to qualify.
There are no monthly payments; you repay the investment anytime during a flexible 30-year term, when you sell the house, refinance, or with another cash reserve.
Final thoughts
Emergency home repairs are stressful and expensive. Fortunately, you can take steps to ease your anxiety – and the impact on your budget.
First, stay on top of your yearly routine home maintenance to ensure small problems remain small. Consider contacting subject matter experts to inspect larger—and more expensive—home systems. Next, set aside part of each paycheck to cover future home maintenance and repair expenses. The funds will add up faster than you think, giving you a tidy emergency fund to draw from when your home needs an emergency repair.
Are you dealing with an emergency repair situation now? If you’re unsure how to pay for the work needed, explore all your options thoroughly.
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