Budgeting for Home Repairs: How a Home Warranty Helps Cut Down Repair Costs

Most say that buying a home is one of the best investments you can make, but it’s an investment that can come with costly headaches if you’re not properly prepared. In addition to covering your mortgage, homeowners insurance, taxes, and potentially even HOA fees, experts also say you should set aside cash for inevitable repairs and routine maintenance.

The general rule is to set aside 1%-4% of the purchase price of your home each year, according to Investopedia, and that can quickly add up. Research from The Motley Fool shows the median home sales price in the US in 2024 is $420,800, and saving just 1% of that each year would mean storing away $4,208 (or $350.66 per month).

And if you try to save 4%, that jumps to $16,832 per year or $1,402.66 per month. All of this becomes even more unrealistic when you remember that 40% of Americans have less than $2,550 in savings, according to US News.

Don’t let your savings drain faster than a bathtub with broken plumbing. Buying a home warranty can offset some of your largest expenses and save you hundreds and even thousands of dollars down the road.

Read the full blog or jump to the section most relevant to you to learn more:

Where do major household repair expenses come from?
Budgeting for home repairs: four strategies
Are home warranties worth it? Five benefits of a home warranty
Find the right home warranty

Where do major household repair expenses come from?

The primary cause of major household repairs and maintenance costs vary from house to house, but there are certain factors to keep in mind:

1. The age of your home

This can influence everything from the strength of your foundation to the moisture in your attic to the reliability of your roof.

As parts of your home age, they can become less reliable, and they creep ever closer to a much-needed repair or replacement.

2. The current condition of your home

One of the biggest reasons the age of your home is so important is because it directly impacts the condition of your home. But it’s not the only factor.

Weather, climate conditions, termites, moisture, routine maintenance, and countless other variables directly influence the overall condition of your home.

3. The local climate

The location of your home can have a significant influence on the condition of certain factors within your house—and it can turn it into a hot mess or a cool retreat. A roof in the hot Las Vegas sun, for example, may last for half the lifetime of the same roof in relatively cool Minnesota.

Likewise, a deck in a hurricane-swept region of Florida may experience more stress and strain than the same deck in the Appalachian mountains.

Four strategies for creating a home budget

Budgeting for repairs isn’t fun, but it doesn’t have to be difficult. Here are some strategies you can use:

1. Set aside 1%-4% of your home value every year

Option one: Follow the age-old advice. If your home is worth $200,000, set aside between $166.67 and $666.67 per month.

Here’s the formula to follow to figure out how much to save:

[ Home Value ] x [1%-4%] ÷ 12 = [ How Much to Save Each Month ]

2. Hire a home inspector

A home inspector inspects the essentials, including your HVAC, plumbing, electrical, roofing, and appliances.

Ask your inspector to create a timeline on how long they think each system and appliance in your home will last, then work with them to determine the average cost of repairs or replacements. From there, you can work backward to determine how much you should set aside each month.

3. Use a home equity line of credit

A home equity line of credit is a loan you can take out against your equity—the percentage of the home you own outright from paying your mortgage.

So, if your home is worth $200,000 and you owe $50,000 on your mortgage, you have $150,000 in equity that you could potentially borrow against.

A HELOC isn’t always recommended because your home is used as collateral, the variable interest rates might not be worth it, and you’ll have minimum withdrawals, but a HELOC can help you access quick cash if you’re in need of a major repair.

4. Purchase a home warranty

A home warranty is an excellent strategy for protecting your budget from the overall costs. Instead of paying hundreds or even thousands of dollars on system and appliance repairs, you can find rates for as low as $100 a month plus a service fee. Plus, as we’ll see in a moment, they carry some serious benefits.

How a home warranty can help cut down repair costs

1. They control costs

The value of a home warranty comes from two places:

• Your monthly payment
• Your coverage

Like car insurance, the monthly expense of your home warranty covers you in the event of an unexpected catastrophe. Your home warranty can cover the cost of replacing essential appliances in the event of an unexpected breakdown.

Compare that monthly payment and service fee to the cost of saving for repairs or to the out-of-pocket costs of covering replacements on your own.

2. They reduce the need to look for vendors

Many home warranty agreements come with a list of preferred vendors for each covered repair/replacement job you may encounter.

This streamlines the repair/replacement process and removes an extra headache from your responsibility list during a stressful time.

3. They have your back

You never know when an unwelcome home repair surprise might hit. With Shield Assurances from American Home Shield, we take care of things other home warranty companies might not, like equipment breakdowns caused by improper installations or repairs, insufficient maintenance, rust/corrosion/sediment, and much more. See the plan agreement for coverage details, including service fees, limitations and exclusions. Coverage limits and charges for non-covered items may apply. Learn more about plan pricing here.

4. Less Worry. More Warranty.

A home warranty offers a worry-free, happy-go-warranty feeling that comes with knowing you have coverage in the event an unexpected covered breakdown occurs in your home. Your warranty can assist in everything from repairing your HVAC to even replacing the refrigerator based on your plan agreement and coverage terms selected. Home warranties even have add-on coverage for pools and built-in spa equipment, roof leak repair, and more.

5. Coverage for aging systems and appliances

There’s plenty to keep track of in your home—the HVAC, your electrical system, your washer, your dryer, the refrigerator, the oven, and more.

If any of these appliances or structures are nearing the end of their lifespan, your home warranty can cover the cost of their eventual replacement, potentially saving you hundreds and even thousands of dollars in out-of-pocket expenses.

Find the right home warranty

American Home Shield® invented the home warranty industry and since then, we’ve built a national network of trusted Pros and helped millions of homeowners. With 4 billion dollars paid in claims over the last 7 years, we believe that a warranty is the key to happy, stress-free home ownership.

At American Home Shield, we offer three plans to fit your home coverage needs. We cover the major components of your home systems and appliances that break down over time due to normal wear and tear, undetectable, pre-existing conditions or breakdowns caused by a lack of maintenance, and malfunctions due to rust or corrosion - all without needing to provide maintenance records. If we can’t repair your covered item, we’ll replace it subject to the limitations and exclusions of your plan agreement.

Get an AHS Home Warranty plan today. To get started, all you need to do is request a quote.