Emergency repairs are a part of homeowner life. Maintaining an emergency savings account is a good way to handle the unexpected. And, of course, there’s homeowners insurance. But what do you do if you have no savings or insufficient coverage? It might make sense to borrow against the equity in your home to cover the repairs and use your home to make them.
Both home equity loans and lines of credit (HELOCs) allow you to tap into the equity in your home (the amount of property you own). A home equity loan is a lump sum installment loan, while a HELOC gives you a line of credit, similar to a credit card, that allows you to withdraw money as needed over time.
In either case, you’ll be putting up your property as collateral for a loan. Is it worth it? Let’s take a closer look at the details of using your home equity for emergency home repairs.
Emergency Savings Statistics
Emergency home repairs are becoming more frequent as damage from extreme weather events becomes more common: 78% of homeowners dealt with unexpected repairs in 2023, compared to just 60% in 2022, according to insurance company Hippo’s Preparedness Pulse Report.
But homeowners are often financially unprepared for these unexpected events, and inflation has driven up the cost of labor and materials, making it harder for homeowners to build up emergency savings accounts or even access funds in the first place.
- According to Bankrate’s annual emergency savings report, 59% of Americans are not satisfied with their current emergency savings levels as of May 2024. Additionally, 32% of consumers have less saved than they did a year ago.
- According to a Bankrate report, 27% of U.S. adults have no emergency savings as of May 2024, the highest percentage since 2020.
- According to Bankrate’s Extreme Weather Survey, 26% of current homeowners say they are not prepared for the potential costs associated with extreme weather events in their area (hurricanes, tornadoes, wildfires, winter storms, floods, etc.) Additionally, the survey revealed that 43% have not taken any steps to protect their property against damage from weather events in the past five years.
Most Common Emergency Home Repair Costs
The cost of emergency repairs can vary widely depending on the size of your home, where you live, the nature of the emergency, and of course the extent of the damage. But no matter your area or home, some repairs tend to be more expensive than others. Here’s a breakdown of the most common emergency home repairs and their typical costs, based on the latest data from HomeAdvisor.
| repair | Cost range | Average cost |
|---|---|---|
| Air conditioning equipment | $130 to $2,000 | $350 |
| roof | $391 to $1,895 | $1,129 |
| Re-wiring* | $4,000-$8,000 | $6,000 |
| Roadway (asphalt) | $1,010 – $3,806 | $2,408 |
| Septic tank | $630 – $3,033 | $1,830 |
| Mold Remediation/Removal | $1,125 to $3,345 | $2,235 |
| Foundation | $2,190 – $7,906 | $5,046 |
Common causes of home damage and emergency repairs
- Natural disasters: Between December 27, 2022 and January 31, 2023, the National Flood Insurance Program paid an average of $53,000 in claims for flood damage. Wildfires alone caused more than $3.2 billion in damages across the United States in 2022-2023.
- Extreme Weather: Extreme weather and climate disasters caused $93.1 billion in losses nationwide in 2023.
- Termites: Termite damage builds up gradually, but can suddenly cause costly disasters, such as partial collapse of a home or fires caused by chewed electrical wires. Repairing termite damage can cost anywhere from a few hundred to a few thousand dollars, depending on the severity of the damage and how quickly it was discovered.
According to Angie’s “State of Housing Spending 2023” report, emergency home repair costs have skyrocketed since the pandemic, rising from an average of $416 per household in 2019 to an average of $1,667 in 2023. Natural disasters in several states have also contributed significantly to this spike.
Should you use your home equity to fund repairs?
If you have accumulated a lot of equity in your home and an emergency five-figure repair is needed, you can tap into that equity to help cover the cost of the repairs, especially if they require major renovations.
“While spending in the remodeling market is expected to weaken next year, homeowners still have significant home equity that could help fund their renovations,” said Abe Will, deputy project director of the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard University.
$305,000
The average amount of home equity held by the average U.S. mortgage holder as of Q1 2024
Source: CoreLogic
Diluting your homeownership — turning your possessions into debt — is not something to take lightly, but a recent Bankrate survey found that 55 percent of current homeowners believe that home improvements and repairs are good enough reasons to tap into their home equity.
Leveraging the equity in a home can potentially alleviate some of the financial stress homeowners face in the event of a catastrophic loss.— Shannon Martin, Bankrate Insurance Writer
How to determine home equity
Whether you can tap into your home’s equity to cover the cost of emergency repairs depends largely on how much equity you have available. Equity is the difference between your home’s current fair market value and the remaining balance of your mortgage or other loans you owe on your home.
For example, if your home is worth $500,000 and your mortgage balance is $350,000, you have $150,000 in equity in your home. However, you can’t actually borrow all of that. Most lenders require you to keep a certain amount of your equity — usually 15 to 20 percent — unused.
How to leverage your home equity
The two main tools homeowners have available to fund emergency repairs are home equity loans and HELOCs. A home equity loan is a lump sum of money that you pay back in monthly installments, usually at a fixed interest rate. A home equity line of credit works like a credit card. It’s a revolving line of credit that you borrow from as you need it. You pay back the amount you withdraw and can borrow money again during a set draw period.
The benefits of using your home equity to fund emergency repairs
Using a home equity loan or HELOC to cover unexpected housing expenses has many benefits, including:
- Low interest rates: Secured loans usually have lower interest rates and more favorable terms than unsecured loans, which means you’ll pay much less interest on a mortgage than you would on a credit card.
- If you have a longer repayment period: Some mortgages have repayment terms of up to 20 years, much longer than most personal loans, making your monthly payments more affordable.
- Tax Benefits: Mortgage interest is often tax deductible if the funds are used to repair, rebuild or significantly remodel your home.
Disadvantages of using your mortgage to fund emergency repairs
As with any financial product, there are drawbacks to consider when using a mortgage or HELOC.
- Chances of losing your home: Your home is collateral for the loan, which means the lender can foreclose if you don’t make payments. And if you sell your home and still have debt outstanding, you’ll have to pay it off immediately with the sale proceeds.
- Reduction of capital: Borrowing against your home’s equity means you have less ownership, which could be a problem if you try to refinance your mortgage in the future. Plus, if your local housing market takes a downturn, your home’s value could plummet, even though you’ve put a lot of money into it. You could also end up with negative home equity, which means you owe more on your home than it’s currently worth.
- Funding timeline: A mortgage may not be the quickest way to get cash in an emergency, as the entire process from application to funding can take a month or more. A HELOC tends to be a bit quicker, taking as little as two weeks to close.
Other Home Improvement Financing Options
If you need to pay for emergency home repairs and don’t want to take out a mortgage or HELOC, consider the following options.
- Homeowners Insurance Claims: A homeowners insurance claim is your first defense against damage or destruction. But before you file a claim with your insurance company, check your policy to see if the damage is covered, understand your deductible, and consider how many times you’ve filed a claim in the past. Also, keep in mind that the time it takes to receive compensation can range from 30 to 90 days.
- Personal Loans: If you don’t have great credit or enough equity in your home, a personal home improvement loan may be a better option for you. Personal loans tend to be quicker and easier to obtain than home equity loans, but they carry relatively high interest rates, especially if you have poor credit.
- Government guaranteed mortgages: Government-guaranteed loans, such as FHA 203(k) loans, VA renovation loans, and USDA Section 504 home repair loans, can help with both small repairs and larger renovation projects. If an emergency situation makes your home uninhabitable, you may not have the time to get these loans, but if your repairs are not urgent and you qualify, they can be a viable option.
The bottom line on using your home to pay for emergency repairs
The costs of unexpected home repairs can add up quickly. Building an emergency savings fund, keeping your credit in good standing, and making sure you’re adequately insured can help you pull money when you need it most, says Shannon Martin, a Bankrate insurance writer and licensed insurance agent. Still, “out-of-pocket expenses are sometimes unavoidable. Tapping into home equity may help ease some of the financial stress homeowners face in the event of a catastrophic loss,” she points out.
Home equity loans or HELOCs usually come with competitive interest rates and long repayment terms. They may be the most affordable option for borrowing large amounts of money. But carefully consider the drawbacks. This type of loan uses your home as collateral, takes time to acquire, and reduces the equity you’ve built in your home. It also acts as a lien against your property and must be repaid immediately if you sell, eating into any profits you may have.
