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Are Home Warranties Worth It?

Read Time: 3 Minutes February 14, 2020

When you buy a new home, you want to feel a sense of closure and relief when all is said and done. Home warranties and home insurance can provide a sense of relief if things start to go wrong down the line. Whether you are a first time or repeat home buyer, purchasing a condo, or even selling, you should learn about home warranties and decide if they are the right move for you!

Family packing up belongings to move

What’s the difference between a home warranty and home insurance?

Home warranties and home insurance are not the same thing. They both are home care services, but ultimately provide different coverage. Your home insurance policy will generally cover unexpected disasters in your home - a fire, a water leak, a tree falling on the roof, etc. (fire, water). Home insurance policies don’t cover the regular wear and tear and mechanical breakdown. So think of home warranties for more of the “everyday” stuff. Another key difference: home insurance is required for a mortgage, whereas home warranties are not.

What is a Home Warranty?

Home warranties are a contract between you (the buyer) and the previous owner of your new home. A home warranty is a service agreement that covers the replacement or repair of major appliances that break down over time like air conditioning, the furnace, plumbing, electrical systems, etc.

What Does a Home Warranty Cover?

  • Plumbing
  • Electrical wiring and infrastructure
  • Appliances like refrigerators, washers, dryers, stoves, and dishwashers
  • HVAC systems
  • Contractor or repair services by professionals like plumbers and electricians
  • Central vacuums
  • Garbage disposals
  • Ceiling fans
  • Bathtubs with motors
  • Jacuzzis, pools, and spas

How Does a Home Warranty Work?

Home warranties can be a huge plus for new homeowners, who have already shelled out a lot of cash for unforeseen closing costs and do not necessarily have lump sums set aside for appliance maintenance that may occur in the first year of owning a home. Rather than paying up front for a costly appliance repair, home warranties spread that money out over monthly payments. Not too dissimilar from machine warranties, which cover a specific appliance, but home warranties cover a blanket of items and can be a smart thing to purchase to make sure you’re covered.

Each warranty and contract is different, but they can cover a range of items from HVAC systems, plumbing, fancy appliances, to equipment and their parts. You can also choose from a range of coverage from basic to extensive warranties depending on the state of appliances and systems in your new home.

Ultimately, home warranties provide peace of mind for the buyer. You won’t get hit with a huge, unexpected surprise cost when something major breaks. It protects appliances as they age, with an expectation that things will break.

A few cons

Home warranties are great to feel at ease, knowing you won’t have any surprise expenses. However, like all insurance, you may never need to use it. So you’re paying for the peace of mind and what might happen.

Home warranties also do not cover everything. Warranties vary, so be sure to do your research, ask your Realtor or lender and talk with the seller to work out what’s best for you. Make sure the seller is being completely transparent about the age and state of everything in the home, so you’re not hit with a surprise down the line.

Which leads us to our next point. Home warranties don’t cover appliances that were not  previously cared for properly. So if the previous owner was negligent and didn’t provide the proper upkeep for certain appliances, home warranties will not  cover resulting damage.

How Much Does a Home Warranty Cost?

Home warranty cost will differ depending on the coverage level, where you’re located, and who you purchase it from, but expect to pay several hundred dollars a year. The cost of warranties generally includes replacement of an appliance or parts, repair, and site visits from service professionals.

There are specific companies that specialize in home warranties, but you may be able to get a warranty from your home insurance company as a bundle. Ask your insurance company, lender, and Realtor for recommendations. Sometimes, a home warranty will be thrown in as an added perk by the seller when you buy a new home. So make sure and ask your real estate professional to look out for this!

If you’re moving into an older home that has a lot of older appliances and systems, a home warranty may be the right move for you. Whereas if you’re moving into a new or newer home, it may not be necessary right away, or you can opt for lower coverage. Home warranties can alleviate financial stress and help if you’re overwhelmed by mechanical issues in your home. Research the companies in your area and know that warranties are negotiable, so talk to your real estate professional about your needs to find the best plan for you!

Learn more in our other educational series.

We’ve assembled a treasure trove of jargon-free information to demystify home-financing and arm you with valuable insights and actionable options.

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