Some home repairs can be put off until you have the money to fix them, but some repairs need to be done immediately before it gets worse. Unfortunately, home repairs can cost a significant amount of money, especially when you are running on a tight budget as it is. So, what do you do when you need a major repair that you can’t afford?
There are three clear options when it comes to making repairs on your home that don’t quite fit your current budget. Most homeowners don’t realize that a property needs a lot of work all the time prior to becoming a homeowner.
Just because you buy a house doesn’t mean that’s the only time you’re going to have a cost associated with it. The structure and property need a lot of repairs and maintenance over the years as grounds shift, storms cause damage, and there’s basic wear and tear from actually living inside it.
Owning a home doesn’t just mean making your mortgage payments, covering your property taxes, and securing homeowners insurance. It also means keeping up with the peripheral costs involved, including maintenance and repairs. Some really strange and unusual events can cause a home to take some damage, and many of those things won’t be covered by insurance.
It’s the latter expense; however, that can really throw homeowners for a loop. Whereas maintenance is often reasonably predictable, a massive repair issue, like a failing roof or a non-functioning septic tank, could spell trouble if you don’t have funds available in the bank to cover it. If that’s the situation you’re in, here are a few potential solutions to explore.
Before you panic, here are some solutions that you can look into:
Use Your Home Equity
Say that your roof is on the verge of collapsing, or you need an experienced electrician to fix a major wiring issue in your home. These are problems that you cannot ignore for the sake of your safety–but what if you don’t have the cash to pay for the needed repairs?
One of the most doable solutions is to tap into your home equity. If you have at least 20% of equity on your home, you can finance your repairs through a home equity loan or a home equity line of credit loan. With a home equity loan, you can borrow a certain amount of money and pay interest on that amount. On the other hand, you gain access to a revolving source of funds as needed.
If you have equity in your home, you can use it to pay for sudden repairs. Equity refers to the portion of your home you own yourself. If your home is worth $180,000, and you owe $120,000 on its mortgage, the remaining $60,000 represents your equity.
If you have at least 20% equity in your home, you’ll generally be eligible for two different financing options: a home equity loan or a home equity line of credit. With the former, you borrow a specific amount and start paying interest on that sum. With the latter, you gain access to a line of credit you can draw down as needed. This means that if you’re looking at a $20,000 home equity loan, you’ll be liable for interest on that full $20,000. If you take out $20,000 and your repair only winds up costing $17,000, you won’t have to pay interest on that remaining $3,000 since you never actually borrowed it in the first place.
Home equity loans and HELOCs are relatively easy to qualify for, and the interest attached to them is usually lower than what you’ll pay with another type of loan. As such, these options are generally a good first resort if you’re stuck having to finance a repair.
Another newer option to consider if you have equity in your home? An alternative equity release product that gives you access to cash without you taking out an actual loan. Take Hometap, for example, which could give you access to up to 20% of your home’s equity in cash in exchange for an opportunity to share in your home’s appreciation. If your home’s value rises, the company makes money. If your home’s value declines, the company shares in that loss. But either way, you don’t make a monthly payment as you would with a traditional home equity loan.
Opt For Home Improvement Financing
If you need to make repairs to your house, you can go to your local home improvement store and ask about their financing options. Often, home improvement stores will offer you open a credit line to purchase what you need with financing, sometimes even with 0% interest for a certain amount of time. Most stores will also offer special discounts or free shipping if you spend more than a certain amount.
Opening a credit line with a home improvement store is a relatively easy way of financing your home repairs if you can pay for the labour out-of-pocket or are doing the labour yourself.
Apply For Cash-Out Refinancing
When you refinance your mortgage, you are essentially paying off your old loan and replacing it with a new one. People refinance their home to get a lower interest rate, shorten the life of their loan, convert to a different type of mortgage (ARM or fixed-rate), or tap into home equity.
The last one is what you’re going for when you have a major home repair that you can’t afford. Refinancing your mortgage with a cash-out option will allow you to get a bigger loan on your house, and then the extra money can be used to cover your repairs. For example, if you owe $100,000 on your current mortgage, you can take out a $120,000 loan to replace your previous balance. You can use the remaining $20,000 for home repairs and other large expenses.
A Home Repair Loan
Many banks have home improvement loans that you can apply for in order to do some repairs on your house.
The basic home repair loans operate just like any other loan (like a mortgage or a car) and require the bank to run your credit and qualify you for it. These loans have wide ranges and depend on how much income you have and how your credit report comes back.
A Home Equity Line of Credit
HELOC, for short, these lines of credits are based on the amount of equity in your home. If you’ve had the mortgage for a while, then you will have some equity in the property that you can take a line of credit on. This would be done with banks or mortgage companies that offer HELOCs.
Refinance with a cash-out option
Refinancing means swapping one loan for another, and you can do it with a mortgage if you’re desperate for money (or if you want to lower the interest rate on your home loan). If you’re staring down a costly home repair, a cash-out refinance is worth exploring. This type of refinancing allows you to secure a new mortgage worth more than what you owe on your home. That way, you can use the extra money for other purposes, like covering a repair.
Say you owe $120,000 on your existing mortgage. With a cash-out refinance, you may be eligible to take out a $140,000 loan instead. The first $120,000 replaces your previous balance, and the remaining $20,000 can be yours in cash. You’ll pay interest on the entire sum, but you’ll get access to money when you need it.
Get A Grant Or Government Loan
Check with your locality if there are grants or government loans available to cover home repairs. However, this option is usually the last resort for homeowners since it can be incredibly difficult to qualify for a government loan or grant. Nevertheless, it’s worth looking into, especially if you are unable to get affordable credit anywhere else.
There are also government assistance programs that offer funds to homeowners whose houses have been damaged by natural disasters. If this is the case for you, look for government assistance on both the federal and local levels to see if you can qualify.
Borrow From Friends And Family
Borrowing money from friends and family should be your last resort, even if it’s the easiest option for you. It can easily complicate your relationship with your loved ones when you are unable to pay them back on time, or worse, unable to pay them back at all. But when you don’t have any other option, you can try financing your home repairs from the people close to you.
However, ensure that you set clear expectations about when you’re going to pay them back to avoid conflict in the future. Don’t say that you’re going to pay them next month if you know you’re not going to be able to. Similarly, if you will be unable to pay them back at the agreed date, let them know in advance so that they know you still intend to pay.
Getting stuck with costly home repairs is a nightmare for any homeowner, but most especially for those who already have financial troubles as it is. If you suddenly run into a major home issue that you can’t afford to pay with cash, here are the next best options that you can try. Think of your next step as soon as possible, and whatever you do, do not ignore the problem because you can’t afford to fix it yet.
When it comes to figuring out your next steps with a home that you can’t make repairs on it, it really depends on what you’re planning to do.
Look into government assistance or community aid
If your home needs repairs as a result of a natural disaster, you may be eligible for financial assistance under the government. And if not, you can see if you’re eligible for a local community aid program. Some states or local agencies make funds (both loans and grants) available to homeowners for emergency home repairs, and though there are income requirements, you’ll need to adhere to in order to qualify.
Code Violations
One thing we need to take into consideration is what happens if your house isn’t up to code.
What are home violations?
These violations occur when something about the home isn’t up to the standards of the local government. For example, many cities have conditions that must be met to consider a home inhabitable.
Some code violations may be such as a working air conditioner (window unit or central air), running water, functioning electricity, etc. These are the basic requirements for a home to allow someone to occupy it. Each city/county may have different requirements, so it’s best to look up the building code for your area.
Sometimes, the city may not notice until you are attempting to sell the property or if the property appears to be abandoned. The city will send someone to check it out and see if there are code violations.
If the violations are present for too long, then the city may condemn the property, which brings it to a totally different stage where you may not even be able to stay in the property or sell it. For some properties, if they are not up to code, more costly work is required to bring it up to code.
What Happens If You Get a Code Violation?
If you get an active code violation, then you need to tread carefully. It’s essential to get the official code violation and understand what needs to be fixed.
Next, you want to make sure that you have approval and permits to do work on the property in order to fix it. If the home has code violations for too long, the city will condemn the property and force you to leave if you are living in it.
If you can’t afford to make the repairs to the home with code violations, then you may want to seriously consider selling the property as-is before it’s too late.
Once the city condemns the property, then they may seriously plan to demolish it. In order to sell the property, the buyer has to get permission from the city, and cities often deny that and end up tearing it down. When the demolition occurs, they may stick you (the owner) with the bill.
What Happens When A House Sits Empty?
When a property sits vacant for a lengthy period of time, then it starts to gradually degrade.
When you are in the home, you’re doing things like running the air conditioner, sweeping/mopping, running the water regularly, addressing exterior issues that might occur because it might be required.
But when appliances, plumbing, electrical, and other house components are not being regularly used and maintained, they start to deteriorate.
When the air is not being conditioned, it may become more humid or collect more dust, which creates an ideal environment for pests, which will damage the structure little by little.
So, how long can you leave it unoccupied?
It’s tough to say, and that answer might differ based on your location, but it’s easy to tell when a house has been vacant for a few months — the air smells different, there’s more dust, and you can tell that it’s been vacant.
After about a year, you might start to see some noticeable degradation, including holes in parts of the exterior where mice or other pests have burrowed and gotten in.
The longer you leave the house empty and unmaintained, the more damage it’s likely to incur, which means it will slowly start to depreciate.
Here’s what to do if you can’t afford to fix your house:
- An expectation with most listed homes is that the house is “move-in ready”, making it difficult when you are trying to compete with other listed properties that are ready to go, yet yours needs some work done to it.
- The only way to compete with that is to have a lower price point to make up because the home needs work done.
- However, this may not be possible if the discount plus the closing costs and commissions will dip below your mortgage because then you’re going to pay to sell your house.
- In order to alleviate some of the costs associated with selling, you might consider doing a “for sale by owner” or FSBO, but that likely means it will take longer to sell the house.
- A lesser-known but often preferred alternative would be to sell your house to an investor because investors prefer homes that need work done.
Selling a house in poor condition
When considering selling your house that needs work, it might be really easy to assume that no one would be interested, but that’s not the case. So, how do you sell a house that needs major repairs? You target a cash buyer such as a real estate investor.
Because investors aren’t looking to move into the home, they are willing to pay for things like closing costs and putting some money into the seller’s pockets when purchasing a house.
An investor, however, will look to purchase the home at a discount. So, to purchase quickly and cover all the costs, they will negotiate to get it at a lower rate. This way, they can make the repairs and re-list it on the market in order to make a profit. This is why you see “we buy ugly houses” signs and commercials.
Once they seek to sell the renovated house, they will also have to deal with closing costs and commission fees, so they have to cover those costs. Just because they purchase at a discount doesn’t mean they are making a lot of money from covering a closing twice, handling all of the repairs, labour and materials, and paying holding costs for multiple months.
Getting stuck with a costly home repair can be stressful and overwhelming, but as you explore your options for covering it, resist the urge to whip out a credit card and call it a day. By charging that expense, you’ll likely subject yourself to a much higher interest rate than what you’d pay on a home equity loan, HELOC, new mortgage, or government or community loan.
Before you resign yourself to footing that repair bill yourself, contact your homeowners’ insurance company and make sure you’re not covered for at least a portion of it. If so, your out-of-pocket costs could wind up being far less substantial.