9 ways to pay for emergency home repairs

Whether it’s a busted sewer line, broken air-conditioner or leaky roof, unexpected home repairs never come at a convenient time. For homeowners caught off guard, figuring out how to pay for these emergencies can be tremendously stressful, especially if they aren’t sitting on a pile of readily accessible cash.

Those in this predicament often struggle with the same questions: 

• How much do unexpected home repairs cost? 
• How do I pay for emergency repairs without breaking the bank? 
• Can I access my home equity to pay for sudden costs? 

While the questions may be similar, there is no one-size-fits-all solution. Let’s consider your situation and options.

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How much do emergency home repairs cost?

Understanding potential and existing home repair expenses is your first step in choosing the best path forward.

According to iPropertyManagement, the most expensive home repairs involve sewer lines, foundations, mold, decks, and driveways. The average homeowner spends more than $3,000 a year on home repairs and maintenance, with unexpected fixes accounting for over half of all annual home repair costs. 

However, a survey by Consumer Affairs reveals troubling statistics. This study of homeowners finds:

• 86% put off home repairs for financial reasons
• 45% believe their home is less safe because they haven’t made a repair
• 67% paid more for a repair because they waited too long

Left unaddressed, damage to your home can worsen over time, causing health and safety problems.

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How do I pay for unexpected home repairs?

Fortunately, you don’t have to delay your home repairs to some obscure future point in time. From government assistance and homeowners insurance to a  loan like a home equity line of credit (HELOCs), you’ve got options:
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1. Homeowners Insurance 

Homeowners insurance typically covers damage caused by fire, wind or snow, but often excludes major catastrophes. Check your insurance policy to see if your particular home repair is covered, and how much the deductible is.

If the deductible exceeds the cost of your repair, this option may not be the right choice.

You’ll also have to factor in time for your claim to be processed and paid out, which can be tricky if your repair can’t wait.

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2. Government Assistance

Government programs can be helpful, especially if your home repair costs are steep. 

The Department of Housing and Urban Development (HUD) provides options such as:

• The 203(k) Rehabilitation Mortgage Insurance Program, which allows you to borrow up to $35,000 through your mortgage for repairs.

• The Title 1 Property Improvement Loan program, which insures emergency home repairs from private lenders to a maximum of $25,000 for single-family homes and $60,000 for multi-unit homes. 

Visit your state HUD office or local/county government housing department to see if these programs are available in your area.

Live in a small town? For homeowners in very-low-income rural areas, the U.S. Department of Agriculture (USDA) offers the Section 504 Home Repair program. Seniors who are 62 or older can also access grants to remove health and safety hazards.
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3. Disaster relief

If your home was damaged by a natural disaster, you could seek funds from organizations like the Federal Emergency Management Agency (FEMA) or Red Cross. FEMA can help you cover emergency disaster repairs that don’t qualify under your homeowners insurance. See if you qualify for assistance.

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4. Credit cards

When faced with an urgent repair, it may be tempting to pull out the plastic. According to a NerdWallet survey, a quarter of homeowners would use their credit card to pay for a sudden $3,000-home repair.

As with any home renovation, credit cards should ideally be reserved for minor repairs and only if you can’t access other types of credit. If you are still enjoying the introductory interest-free period or if rewards like cash back options for home repairs are available, using your credit card can make financial sense.

However, credit cards usually come with high interest rates. If you can’t pay off the balance quickly, they may leave you stuck with high-interest debt. 
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5. Personal loans

Personal loans often boast lower interest rates than credit cards, and can be a suitable option for home repairs with small to medium costs. Offered by traditional banks, credit unions and online lenders, these loans are easily accessible and can be approved quickly. A good credit score can help you get a lower interest rate.

Despite their convenience, personal loans have higher interest rates than loans secured against your home equity. Before choosing this option, make sure you can take on the extra monthly debt payments.

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How can I access my home equity to pay for sudden costs?

Lending options that let you take advantage of the equity in your home can offer some of the lowest interest rates. To calculate your home equity — which is the amount of ownership you have in your home — subtract your mortgage balance from the market value of your dwelling. 

If you’ve built up equity in your home, here are other ways you can pay for your emergency repairs:

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6. Home equity loans

Home equity loans let you borrow against the equity in your home. As secured loans, they are available in larger amounts and at lower interest rates than personal loans.

This type of loan is best for big-ticket repairs that will cost upwards of $25,000. In fact, most lenders won’t give you a home equity loan under $35,000.

If you have built up at least 15 to 20% equity in your home, and want predictable monthly payments, a home equity loan may be suitable. In the case of products like a Fraction Mortgage, you can unlock up to 45% of your home’s untapped equity for unexpected expenses. These types of loans come with no required monthly payments* and no penalties. Approval can be quick, especially if you need cash in a flash. 

But keep in mind that this type of loan uses your dwelling as collateral. If you can’t make the monthly payments, you risk losing your home.

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7. Home equity lines of credit (HELOCs)

Like home equity loans, home equity lines of credit (HELOCs) are secured against the value of your home equity. But instead of giving you one lump sum loan, they come with a limit under which you can draw funds multiple times, similar to credit cards. 

Because of their flexibility, HELOCs give you more control over how much and how often you borrow and pay back money — which can be ideal for unexpected repairs with unpredictable costs.

HELOCs tend to have variable interest rates, and few, if any, closing costs. As you’re not charged interest on untouched credit, HELOCs can act as a good rainy day fund.

Keep in mind that not all HELOCs are created equal. Traditional HELOCs can be rigid, and come with ongoing costs and monthly payments. In contrast, a first-lien open line of credit, like the Fraction Mortgage, offers a more flexible option. With a Fraction Mortgage, you can convert up to 45% of your home’s equity into tax-free cash, with no monthly payments. See if you qualify for a Fraction Mortgage.

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8. Cash-out refinance

Another way to tap into your home equity is cash-out refinancing, which replaces your current mortgage with a new mortgage — one that is higher than your existing mortgage balance. The difference is paid out to you in a lump sum.

Cash-out refinancing may be a good fit if you want the lowest interest rates available, a single mortgage payment, and the ability to amortize your payments over a longer period.

Granted, a cash-out refinance doesn’t come without its risks. In the event that your home depreciates in value, a cash-out refinance may leave you owing more than your home is worth, putting you in the red.

If you’re unsure how your home will change in value over time, you may want to consider Fraction Cash-Out. Similar to cash-out refinancing, Fraction provides you access to tax-free cash from your home equity. However, unlike refinancing, your interest rate will be tied to the appreciation of your home — dropping to our lowest rate in the event your home depreciates or only slightly increases in value. See Fraction’s latest rates.
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9. Savings

Ultimately, money you’ve saved is the cheapest way to fund emergency repairs. Experts recommend putting away 1% to 4% of your home’s purchase price for repairs and maintenance, depending on how old your property is.

Paying upfront for a home warranty could also relieve some of the financial pressure you face when a major appliance or home system breaks. 

Saving up is hard, and everyone’s personal financial situation is different. Even if you have planned well for home maintenance, emergency repairs can cost more than what you’ve put away.

Decisions, decisions

If you’re a homeowner, unexpected home repairs are inevitable. If you haven’t saved enough or don’t have insurance or warranty coverage, you’ll have to choose the best type of financing for your needs. 

If your repair work is minor and you have a good credit score, an unsecured personal loan might do the trick. For major repairs, tapping into your home equity may be the wiser choice. 
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Consider a Fraction Mortgage

With a Fraction Mortgage, you can unlock up to $1.5M of your home equity while staying in the home you love.

Interested in seeing what a Fraction Mortgage looks like for your home? Get an estimate or contact a Fraction team member today.