How to pay for emergency home repairs

You might budget for routine home maintenance and planned improvements, but when an emergency home repair comes up, do you have a plan in place to cover the costs?

If you have an emergency fund or reliable homeowners insurance coverage, you should be covered. But what if you don’t — or, given the nature of the emergency, you have to shell out now and wait for your insurer to reimburse you?

There are credit cards, of course. But they’re a pricey option that could cost you a fortune in interest. Plus, you could quickly max out your credit line if repair costs are well into the thousands. Home repair loans — meaning personal loans, home equity loans or other financing you apply to your fixes — can be a good idea for those who do not have the money readily available.

Let’s explore the options in paying for emergency home repairs.

How much do emergency home repairs cost?

In its 2022 State of Home Spending Report, Angi, the home-improvement reference and contractor search site, found that homeowners completing emergency repairs spent an average of $1,953 in 2021, a 16 percent increase over the year prior. The amount of home repair costs vary by the type of damage, though. The Federal Emergency Management Agency (FEMA) says that just an inch of water in your home can do $25,000 of damage.

Inflation is the culprit for steady increases in repair costs. But natural disasters in some states, including California, New York and Texas are also to blame, Angi notes. And many homeowners are either taking on or planning to invest in mitigation projects in the coming year to ward off the negative effects of extreme weather. A January 2022 survey by James Hardie Industries found that nearly 50 percent of homeowners report needing to make major repairs as a result of extreme weather events.

In addition, a study from Thumbtack, another contractor search site, found that the national average cost of maintaining a single family home — including routine maintenance tasks as well as repairs — came to $6,493, as of Q2 2023.

Repair costs will continue to fluctuate year to year depending on the work needed and the availability of labor and materials. You could discover your house needs a new roof or have a natural disaster sweep through your area. The key takeaway is this: Just because you didn’t spend a lot on home repairs one year doesn’t mean you shouldn’t anticipate more the next year.

Common emergency home repair costs

The price you’ll pay for emergency home repairs varies by the type of emergency you experience, the level of damage and the square footage of your home. Your location also plays a role in repair costs. Below is a breakdown of what to expect for the more common home emergency home repairs.

Ways to finance an emergency home repair

If your house needs repair stat, you have options. Before you dip into any savings, start with your home insurance policy. If the loss isn’t covered and you don’t have enough in savings, you can explore financing options.

Homeowners insurance claim

If the repair is truly an emergency, you might not have time to wait for a homeowners insurance claim to be processed and paid out. However, if you do opt to pursue filing a claim, be sure the repair is actually covered by your policy.

“Oftentimes, major catastrophes may not be covered,” says Michael Foguth, founder and president of Michigan-based Foguth Financial Group. “You should also consider your policy’s deductible before choosing this option.”

If you don’t have the money on hand to pay a steep deductible, a homeowners insurance claim might not be right for you. In addition, if the cost of the repair is less than the deductible you’re required to pay under your policy, this option may not make sense.

Personal loan

While there is no financing specifically earmarked for emergency home repairs, quite a few different products could apply as emergency loans.

For emergency home repairs with a small-to-medium price tag, a personal loan makes a lot of sense. They’re easy to come by and are offered by most banks, credit unions or online lenders. You can typically get approved quickly and have funds available the next day.

“Applying for a personal loan is less complicated than applying for a mortgage or home equity loan; you just need to show proof of income and employment,” Juan Carlos Cruz, founder of New York-based Britewater Financial Group, says. “As long as you have a good job history and can pay back the loan, you should be able to qualify.”

For all of the convenience personal loans offer, they come with relatively high interest rates. As a result, if you take out a personal loan to cover an emergency home repair, you’ll want to make sure your credit score is in good shape to get the best possible rate. You also want to make sure you can handle the extra monthly debt load without having trouble making payments.

Home improvement loan

You can use a home improvement loan, which is a type of personal loan, to cover the cost of anything from upgrading and remodeling a property to paying for emergency fixes.

“Home repair loans are typically unsecured, so you won’t need to use your property’s equity as collateral to qualify,” explains Cruz. “Once you’re approved, lenders will deposit the money in a few business days. These loans are typically calculated on a shorter repayment schedule, with terms ranging from 24 to 60 months.”

The amount of funding you’re able to qualify for will depend on your credit profile. As with general personal loans, these loans generally come with a higher interest rate than other financing options, and your rate could be higher if you specify that the loan will be used for home improvements. However, you can expect a set monthly payment since most home improvement loans have fixed interest rates.

If you need to borrow a sizable amount, a secured loan could be more ideal.

Home equity loan

Home equity loans are commonly used as house repair loans since they are secured against the equity you’ve built in your home and are available in larger sums than personal loans. This type of loan is issued in a lump sum that is equal to a portion of your home equity and is best for major repairs that will cost $25,000 and up. Most financial institutions won’t offer a home equity loan for less than that amount, although you might be able to find a home equity loan for as little as $10,000 if you do some digging.

“With this option, borrowers get a lower fixed interest rate because it’s a secured loan, which means you have to put up your home as collateral,” says Matt Lattman, CMO, Personal Loans at Discover Financial Services. “The benefit is a predictable and manageable repayment that can help restore your home’s value at the same time.”

In order to take out a home equity loan, though, you’ll typically need to have enough at least 15 percent to 20 percent equity in your home to borrow against, which may not be the case if your home was a recent purchase. You should also make sure you can afford loan repayments:  Your house  could be foreclosed upon if you default.

Home equity line of credit (HELOC)

With a home equity line of credit, or HELOC, you also borrow against the equity you have in your home, using your home as collateral to secure the loan. The difference is that you’re given a line of credit with a limit that you can draw on multiple times rather than one lump sum of a home equity loan.

The flexibility of HELOCs gives you more control over how much you borrow and pay back, which is convenient if you’re dealing with a major emergency project with unpredictable costs.

“HELOCS may also come with a fixed-interest rate option that’s usually lower than a personal loan or home repair loan,” Cruz says. However, many HELOCs have a variable interest rate.

You don’t have to use all of the line of credit you get with this option, so it could be a good fit if you’re unsure how much your emergency home repair will cost. Still, though, because you need to qualify for the HELOC, it’s only an option for people who have built up enough equity in their homes to borrow against.

Government loans

HUD insures emergency home repair loans from private lenders, known as Title 1 Property Improvement Loans. The loans are good for repairs up to $25,000 for single-family homes and up to $60,000 for multi-unit homes. You’re not required to have any equity in your home, although you must have occupied it for at least 90 days, and you have to meet other lending requirements to qualify.

Home refinance/ renovation loans

If your home repair costs tower, you might want to explore refinancing into a 203(k) mortgage. It is insured by the Federal Housing Administration (FHA), which means your mortgage issuer might be willing to finance a home they normally wouldn’t (in this case, one in need of serious emergency repairs). You can explore a limited 203(k) mortgage, which will allow you to finance up to $35,000 for repairs, or a traditional 203(k) mortgage, which lets you finance up to 110 percent of your appraised property value.

Be advised, though, that this isn’t a path to quick money. Refinancing a mortgage generally takes time, and that’s particularly true with the government involved. Plus, with a 203(k) refinance, the money only gets issued to you as repairs get completed by a licensed contractor and, in some cases, approved by a Department of Housing and Urban Development (HUD) consultant.

The Fannie Mae HomeStyle loan is another alternative worth considering. Loan proceeds can be used for any project, and the renovation costs are capped at 75 percent of your property’s projected value once the renovation is complete. (The borrowing limit decreases to 50 percent if you own a manufactured home). Consequently, this option is generally more suitable for repairs that involve major home improvement projects. Keep in mind that you have 12 months from the loan closing date to complete the renovation.

Saving money for home repairs

To prepare for the unexpected, home insurance companies recommend saving up 1 percent to 4 percent of your home’s value for emergencies and regular maintenance. If your home is worth $300,000, you might set aside $9,000, for example.

You could add this to your emergency fund or set up a separate account for your home, whichever works best for you.

For an extra cushion, you can also explore home repair plans, which are essentially insurance coverage for repairs to your plumbing, electrical system or other key components of your home. Like insurance coverage, these plans come with terms specifying what type of issues qualify you for coverage, along with coverage limits. Similarly, you could look into a home warranty, which provides repair and replacement protection for many of your home’s most important appliances, mechanicals and systems.

Should I get a loan for emergency home repairs?

“Many problems get worse the longer they’re left unaddressed, both in terms of their severity and a consumer’s own wellbeing,” Lattman says. “It can be extremely stressful to have unexpected expenses pop up around the home, and using savings isn’t always an option. A personal loan can enable you to do the work you need now while making predictable payments over time without immediately tapping into savings.”

The key, however, is to make sure you secure the right type of financing for your needs so that you’re not unnecessarily driving up the cost of your project over the long run by paying excess interest.

If you only need a small loan and have a good credit score, an unsecured personal loan may be a good choice for you. If you need extensive work or repairs, you may be better off securing a HELOC or home equity loan.

If you go the loan route, make sure to do your research and compare financing options to get the best interest rates. Also, says Carlos, “With any loan option, just be sure to borrow for all costs and a little extra for those unexpected expenses during construction so you won’t fall short of completion and then have to reapply for an extension on that loan.”

Whether you choose to save up, buy some sort of service plan or both, make sure you have a budget and plan for emergency home repairs, though. They’re all but inevitable. At the end of the day, you want to be able to rest easy so that your emergency home repair won’t spell long-term financial difficulty for you.