Explore Your Options: Finding Ways to Pay for Emergency Home Repairs

A well-timed emergency home repair is a rarity. A leaky roof or broken-down furnace will usually catch you off guard and unprepared unless your savings account is up to the challenge. According to NerdWallet’s 2017 Home Improvement Report, more than 30 percent of Americans have failed to save enough money to cover the cost of emergency home repairs. It that’s you, don’t automatically reach for your credit card. Those who lack a rainy-day fund need to know all the alternatives available to them in a pinch.

Common Home Repairs

Some of the most common home repairs are also among the costliest. Foundation and roof repair can both easily lead to a four-figure bill, as can water heater repair or replacement. Termites represent a lethal threat to the structure of your home and require the help of a certified pest control professional. If you find evidence of termites, contact an exterminator right away; use a convenient online search tool to help you find a qualified exterminator near you.

If you need to hire a contractor, be thorough about gathering information, interviewing candidates, and especially about getting bids (always get at least three). Also, be sure to put every detail in writing so nothing can be disputed.

Homeowners Insurance

When financing a repair, the first step should be to check your homeowners insurance policy. Don’t assume that something won’t be covered until you’ve checked the fine print — you might qualify for at least partial coverage. Homeowners insurance covers not only your home’s physical structure but also personal property in some circumstances.

Government Aid

Low-income homeowners can seek assistance from the USDA Section 504 Home Repair loan program. It provides loans to low-income homeowners to repair, improve, or modernize their homes (and to remove health and safety hazards for low-income elderly homeowners). Loans can be repaid over 20 years at an interest rate of 1 percent.

Home Equity

If you have home equity and a credit score of at least 620, you may have access to funds through a home equity line of credit (HELOC), which works like a second mortgage, providing access to up to 85 percent of your home’s total value (minus the balance on your primary mortgage). An emergency home repair is a good reason to look into a HELOC, but assess your finances carefully. There can be serious financial consequences if you’re unable to pay it back.

Saving for a Rainy Day

Financial experts recommend saving at least three months of living expenses. Coming up with an accurate figure means determining your basic (not discretionary) living expenses, such as mortgage, utilities, food, transportation, and debt. Don’t worry if building your emergency fund seems to be taking too long. Remember that a little is better than nothing and that it may take time and patience to save enough to cover major home repairs. Setting aside just $30 a week can give you more than $3,000 at the end of two years.

Refinance

A cash-out refinance is another option for homeowners who have equity in their home. It generally offers a lower interest rate than a HELOC, but be aware that there’s a risk of foreclosure if you fail to pay it back — your home is the collateral, so be certain you’ll be able to keep up with the payments in a timely fashion. And don’t forget to factor in closing costs, which can be as high as 6 percent of the mortgage.

Be methodical about weighing your options in the event an emergency home repair becomes necessary. It can be too easy to opt for an easy solution that can land you in a tough financial situation, so check your homeowners insurance policy and talk with someone at your bank about home equity loan options. Finding the right alternative can save you a bundle, so be diligent.

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