Why first time buyers will have to save ( not borrow) money each month for home maintenance and expenses

Maintenance costs of a home are usually an afterthought when buying.  Anybody buying a resale home may "notice" the roof needs replacing, windows need changing, or appliances are on their last legs.  But they fail to calculate the cost of maintenance and the changing out of these components when buying a home.

Something that bugs me when calculating the total cost of monthly payments are that calculators say the annual maintenance of a home is between 1% and 4% of the value of the home.  In reality, there are so many variables with this broad calculation that we need to look at more in depth.

So how do we do this?  First, we need to determine what components of a house that will cause maintenance costs.  So lets start from the top, move down and then outside.

• roof
• eavestroughs
• windows
• flooring
• lights
• furnace
• water heater
• air conditioner
• stove
• fridge
• dishwasher
• freezer
• washer
• dryer
• fence
• deck
• lawnmower
• snowblower
• fuel for outdoor equipment

Next, we need to establish the age of the house and these components.
Then, we need to determine life expectancy and replacement costs of these components.

So let's say the house in our example is an average bungalow in Saskatoon that was built in 1990 and it has some upgrades. It would look something like this: ( Results will differ with age, type of house and if you are a DIYer)

Now this is not exact.  But it does give a person an idea of what to budget for.  Looking at this example shows that the annual maintenance of a home is $3236.  Throw in lights, fuel for equipment, garden tools, estimates probably being on the low side and the annual maintenance of a home is around $3600 a year or $300 a month.  I also made some of these calculations for a DIY person.  As well, older houses could have structural costs that could run into the tens of thousands of dollars.  You will also see I did not include stuff such as plumbing or electrical changes and upgrades which would also add to monthly costs.  And this does not include cosmetic changes such as painting or reno's such as kitchens and bathrooms.   We can see here how much Canadians have embraced home renovations over the last decade.

Why will first time buyers have to save money to pay for home expenses?
Regardless of rising house prices, ( in most jurisdictions in Canada, house prices will go down) there is a big possibility that homeowners will soon only be able to borrow up to 65% of the worth of a home  (page 13 and 14).  This is down from the 80% as of now ( 85% if you insure the mortgage from default).  For the average home in Canada, home owners will only be able to borrow up to about 235k of the homes equity (on a 360k house). So many first time home owners will need to save money to pay for home expenses as they will not be able to borrow against their homes like in past years.  Using the home as a ATM will be a thing of the past. 

We are definitely seeing the affects of consumers tapping out and the new mortgage rules of 2011 ( which has made it harder to borrow against ones home) as the brakes are slammed on credit growth.  Notice the little peak in 2009?  That is the home reno tax credit! 

So if you are buying a resale home, make sure you do your homework from top to bottom and if you plan and save for huge maintenance costs ahead of time, you will be ready for unexpected costs associated with home ownership.  Like I said before, hoping for rising house prices and using the house as a ATM will be a thing of the past.