Congratulations on the new home. But hang on. The garbage disposal isn’t working as it should. The hot water doesn’t seem to be hot anymore. A home warranty can ease the headaches and financial strain of fixing or replacing appliances and home systems, but any contract will require much more than a glance.
A policy can be purchased directly from a home warranty company at any time, not just upon a move-in. In some cases, the seller may provide a home warranty with the sale of the home.
Home warranties can help protect new homeowners and existing owners from troubles here and there, but is a home warranty really worth it?
What Exactly Is a Home Warranty?
A home warranty—different from homeowners insurance—covers specific items such as home systems (things like the HVAC system), washers and dryers, kitchen appliances, pool equipment, garbage disposals, and exposed electrical work.
Homeowners insurance covers theft and damage to a home from perils like fire, wind, and lightning strikes.
While homeowners insurance is typically required by a mortgage company, home warranties are optional.
Price of a Home Warranty
The cost of a home warranty can range from about $350 to $600 a year, or more for coverage for items not on the stock home warranty list. Extras may include pool systems and septic systems.
Those who purchase a home warranty will pay that annual premium, but if they do call in a service provider they will likely have to pay a fee for service calls, too.
Depending on the extent of the issue, the service call may cost anywhere from $60 to $125.
Pros of a Home Warranty
While the above fee may seem like a lot, the real pro of having a home warranty is it could save a homeowner a bundle on repairs in the future. HomeAdvisor reports that the average national cost to replace central air conditioning is $5,750 and that a new water heater can average $1,160. Both of these items would likely be covered under a home warranty.
Another benefit of a home warranty is pure convenience. If something breaks, a homeowner calls the warranty company, which will likely have a list of technicians at the ready. This means homeowners won’t have to spend time researching and vetting the right people for a repair or replacement. As the saying goes, time is money.
Then there’s resale value. When selling a home, homeowners with a home warranty may be able to transfer the warranty to the new owner, which could be a bargaining chip for those attempting to sell an older home. (Some home warranties are non-transferable, so it’s up to sellers to do their due diligence when adding this to the deal.)
Cons of a Home Warranty
A downside of a home warranty is that it can be complicated to understand. That’s why it’s up to every purchaser to carefully read the contract before signing and ask all the questions they need to in order to understand the warranty.
For example, a home warranty may come with a financial limit per repair or per year. So if someone ends up having one heck of a year with the appliances, some of those repairs may not be covered.
You may need to request additional coverage for appliances that are considered optional or replaced frequently. And will your Sub-Zero fridge and Wolf range be covered if they go kaput? (Not likely.) Most warranty companies list excluded items on their sample contracts.
Ask: Will the plan repair or replace a broken item? If a repair is considered too expensive, the provider might offer to replace the broken item—but give you only the depreciated value.
Claims can also be denied by the warranty company for a variety of reasons, including if it believes an appliance hasn’t properly been maintained. The warranty company can also ultimately decide if a problem is worth fixing or not, despite how the homeowner feels about the situation.
Home warranties also cannot guarantee timeliness. If something breaks, homeowners may have to wait longer than they’d like to get it fixed.
Home warranties will also likely not cover preexisting conditions. If a person moves into a home with a termite problem, the warranty will likely not cover the cost to repair issues. Before you sign the warranty, the company will probably come inspect all the items covered, and could deny coverage for certain items.
Choosing the Right Home Warranty
This really comes down to personal choice and research. It’s important to look into each contract to see what is covered, what isn’t, the cost of services, and more.
While searching the internet for the right home warranty, it may be best to go beyond online reviews. Rather than looking on public listings, head over to websites like the Better Business Bureau and search for individual companies.
There, would-be home warranty buyers can search for companies to read the vetted reviews, alongside any potential complaints.
Is a Home Warranty Really Worth It?
A home warranty could be the right call for people who are not up for having to perform repairs themselves or don’t have time to hire technicians.
For those buying a new construction, a home warranty may likely be unnecessary as many newer homes come with some type of guarantee. That and because everything is newer, it may be less likely to break early on.
Individual appliances may also come with their own warranties, so make sure to check each one to see if it’s still protected before spending extra money on it with a home warranty.
One more way to figure out if a home warranty is worth it is to check out the home’s inspection report. If there are red flags about a home’s condition, it may be a good idea to purchase a home warranty to cover any additional expenses that crop up.
Alternatives to Home Warranties
If homeowners are worried about protecting their investment but aren’t sure a home warranty is right for them, there is an alternative: Build up an emergency fund.
Homeowners can start stashing away cash into an emergency savings fund that they can dip into whenever they need repairs done. This acts as their own “home warranty” without having to pay a premium to a company.
To take it one step further, homeowners could also create a spreadsheet with the names of repair workers when they need something fixed.
Are home warranties worth it? Anyone looking into purchasing one will want to take a close look at the annual cost, the charge for service calls, exactly what is and isn’t included, and how much of a replacement item is covered. Convenience is a benefit, but an alternative is to self-insure with an emergency fund.
Buyers might face another decision: choosing the right home loan lender. Looking into a SoFi mortgage is a great place to start.
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