How much should I budget for home maintenance costs?

If you're among those considering making a home purchase, you'll want to have a realistic forecast of your potential financial obligations. 

It's easy to find information about everything from securing pre-approval to calculating mortgage payments, but there's much more to buying a new home. You'll face responsibilities and expenses that only begin after you've closed. Home maintenance costs are a perfect example. 

As a new homeowner, you’ll want to know how much you'll need to maintain your home properly, but the answer is not a simple calculation. Your home's value, size, age, condition and even location can affect the bottom line. If you're looking for more information on how to determine and budget for your home maintenance costs, you're in the right place.

Home maintenance encompasses all the things you need to do to keep your home in good repair and running smoothly. They can be divided into two rough categories: annual maintenance costs and replacement or longer-term costs.

Annual maintenance costs include regular upkeep expenses such as changing the furnace filter, replacing batteries in smoke detectors, lawn care, and cleaning the eavestroughs. These are usually fairly inexpensive projects.

There are also longer-term projects and the once-per-decade repairs or maintenance costs to consider. This category includes things like roof replacement, landscaping, purchasing a new water heater or other major repairs.

Before you get down to budgeting for these expenses, you want to estimate your total maintenance costs, which vary according to your home's value, location, age, condition and size.

Although many variables affect your maintenance costs, you need an estimate if you want to include them in your household budget. This is an especially important step if you're a first-time home buyer. It's easy to underestimate the finances you need for this expense category. Luckily, you can get into the right ballpark by doing a few types of calculation.

First up is the so-called “1% rule," which, unsurprisingly, says that homeowners should set aside 1% of your home's purchase price annually for home maintenance.* For example, if you paid $500,000 for your home, you'd budget $5,000 per year for maintenance. While this is a useful start, some think it’s on the low end, recommending as much as 3% to 5%.** In this scenario, you'd be looking at $15,000 to $25,000 per year to keep your $500,000 home in good repair.

Another school of thought recommends the square footage rule, which has you saving $1 per square foot of your home for maintenance and repair costs. While it makes sense that larger homes would require more in the way of maintenance, this system neglects to take into account all the other variables that will affect your costs. For example, you won't soon face replacement costs for appliances in a newer home, no matter its size. Your location will also affect labour costs, which is one of the biggest line items for repairs that aren't DIY. It's easy to see that square footage is only one factor of many that will affect your maintenance costs.

Perhaps the best way to estimate your costs is to take a thorough look at your individual property and lay out a maintenance schedule. Take into account the age of major features like your roof, siding, foundation, electrical and plumbing. Research replacement costs for these projects and document them on a timeline. Do the same for your water heater, furnace, air conditioner and other major appliances. Finally, estimate the monthly cost of regular upkeep. These numbers will give you a baseline amount for your regular home maintenance plus a time horizon for larger expenses so you can plan for them in your household budget.

Having a household budget is as crucial as having a personal one. If you don't know where your money is going, it can be difficult to meet your financial goals.  

Let's say you've determined you need $1,000 for everyday maintenance plus a $5,000 emergency fund for major repairs and replacement costs annually. It may not be easy to locate an extra $6,000 in a lump sum. You could look to break that total down into more manageable monthly deposits of $500 over 12 months.

Where you put your money is important. Home maintenance is a regular, recurring expense, so you will need to have easy access to at least some of your allocated funds. You could use a savings account to be your “home maintenance account.” 

You could also consider putting some of your savings for home maintenance in a different investment vehicle. Once you're on a regular savings schedule, your money begins to add up quickly, but it's likely your major home repairs will be staggered—and you can check this against your timeline. Consider putting some of your home maintenance savings in a guaranteed investment certificate. Guaranteed Investment Certificates (GICs) work similarly to savings accounts as you can earn interest on your funds without the risk of losing your original principal investment. However, unlike many savings account, GICs are not meant to be touched for a set amount of time. Because you will need access to some of your funds over time, you don't want them locked away entirely. This is where GIC laddering comes into play.

GIC laddering is a strategy where you divide your funds and invest them in GICs with staggered (laddered) maturity dates. This allows you to take advantage of the higher rates typically paid on longer-term investments while ensuring a portion of your money becomes available at regular intervals.

Another great way you can finance your home maintenance projects is by using the equity you’ve built up in your home under the Scotia Total Equity® Plan (STEP). STEP lets you choose from different kinds of Scotiabank credit products (like mortgages and lines of credit) based on your needs, all with one easy application.¹ By adding a product like the ScotiaLine Personal Line of Credit under your STEP, you can gain access to a higher credit limit to make those larger unexpected purchases and if you have an access card linked to you ScotiaLine you can make any necessary in-store and online purchases at a lower interest rate than a credit card. This is great for those unforeseen maintenance or renovation costs.  With STEP, you can also set up the Automatic Credit Limit Increase feature. This feature automatically increases the credit limit on a selected ScotiaLine® Personal Line of Credit when you pay down the principal of your mortgage.² So when you need funds to replace your roof, you will have access to it. 

Home maintenance costs can be tricky to pin down, but that doesn't mean you shouldn't try. Use the tools in this article to identify how much money you will need. A solid savings strategy will ensure you have the funds on hand when you need them, which will help keep your home—and your bank account—in good working order.

Home maintenance costs can be tricky to pin down, but that doesn't mean you shouldn't try. Use the tools in this article to identify how much money you will need. A solid savings strategy will ensure you have the funds on hand when you need them, which will help keep your home—and your bank account—in good working order.