Urgent home repairs are never well-timed and often come with significant financial strain. According to the Federal Emergency Management Agency (FEMA), even one inch of water on one’s property can already result in $25,000 worth of damage.
How much more if the damage is beyond repair? For instance, Nerdwallet reported that a roof replacement is now averaging $11,000 per thousand square feet using typical materials. If premium materials such as copper, slate, or clay are used, the cost can reach up to $50,000.
Considering the huge costs, not every property owner can cover the entire amount, especially when they don’t have enough cash on hand. Fortunately, there are several ways for them to cover such expenses.
Homeowners Insurance and Warranty Coverage
If property damage is caused by natural disasters such as fallen trees, fire, wildfire, hail, lightning, or hurricanes, it can usually be covered by standard homeowners policies. However, insurers don’t usually cover damage due to normal wear and tear, floods, and earthquakes.
In contrast, warranty coverage can include wear and tear on certain components of a property’s HVAC, electrical, or plumbing systems. Some policies may also cover the repair or replacement of household appliances.
To cover damage caused by floods and earthquakes, a separate insurance policy on top of a home insurance policy is typically advised. These policies are typically called “flood insurance” and “earthquake insurance,” and they can cost $1,153 and $850, respectively, as reported by Forbes.
Personal Loans
For those who have decent credit and the means to repay the debt, personal loans are advised. Aside from the idea that they can be used for nearly any purpose, including an urgent home fix, many of them promise instant loan approval and fast cash up to $50,000.
Many personal loan lenders operate online. This enables borrowers to process loan applications anywhere and, sometimes, anytime. They also use automation to speed up certain parts of the loan process, such as pre-qualification and document verification.
Additionally, many personal loans are unsecured, meaning no collateral is required. However, for the same reason, many lenders require good credit scores, typically 670 to 739 (FICO® Scores) for them to reduce lending risks.
If one’s credit score is lower, personal lenders may ask for collateral or a cosigner or increase loan costs. If these are not to your liking, consider other financing, such as credit builder loans. According to the CreditNinja blog, these not only provide urgent funds but also help borrowers establish a positive credit history.
Home Equity Loan & HELOC
A home equity loan is another alternative to personal loans. Unlike most unsecured personal loans, it leverages the property’s equity as collateral. On a positive note, they’re more affordable than other cash-out refinance and are tax-deductible if used for home purchase or improvement.
Home equity loans also make budgeting easier. Their rates are fixed, so they often have predictable monthly payments. However, if the total potential costs often change, a home equity line of credit (HELOC) is recommended. It works like a credit card, so it’s a more flexible financial tool for ongoing repairs.
Reverse Mortgages
However, before pursuing this option, it’s important to understand the terms and how they will affect the long-term value of the home. Reverse mortgages can reduce the equity in a home over time, as interest and fees accrue. Homeowners should consider their options carefully and consult with a financial advisor to make sure this is the right fit.
Government Assistance Programs
In the United States, there are government agencies that can assist American citizens who are tackling property damage costs. These may include the United States Department of Agriculture (USDA) and the Federal Housing Administration (FHA).
- USDA home repair grants and loans are typically offered to qualified single-family homeowners in eligible rural areas. In most cases, eligible residents over age 62 can qualify for an up to $10,000 grant, while those under age 62 can qualify for up to $40,000.
- FHA 203(k) loans can be taken as a limited loan up to $35,000, a traditional loan up to 110% of a property’s appraised value, or as a mortgage refinance, where the FHA 203(k) loan pays off a first home loan and covers the required repairs. Unfortunately, getting funds from FHA 203(k) loans can take a while.
Other local governments or non-profit organizations also offer various home improvement loans. However, these are only for a specific population, including those with poor credit and low income. Check out the National Residential Improvement Association to find out more about 0% home loans and government-sponsored assistance in your area.
Stay Ahead of Home Repairs
Regular maintenance, early detection of potential issues, and proactive upgrades are key to preventing costly urgent home fixes. More importantly, setting aside dedicated funds for home fixes creates a financial safety net and ensures preparedness for any urgent situation.