Are Home Warranties Worth It? Whether You Need One or Not Dissected
Buying a house is a big deal -- and a big risk. Thinking about everything that can go wrong makes it difficult to sleep at night. The good news is that home warranties could potentially address your anxieties about your new purchase. However, there’s more to home warranties than initially meets the eye.
What Is a Home Warranty?
Starting with the basics: What is a home warranty? A home warranty is a type of service contract that protects certain appliances and systems within your home. This service contract is usually put in place during the sale of a home to give the buyers peace of mind. A home warranty differs from homeowners insurance in that an insurance policy covers damage from natural disasters that can affect the entire home rather than just one specific component. Still confused? Here’s some more information to help you understand the difference. A home warranty typically covers things such as appliances (washers, dryers, refrigerators, stoves), furnaces, HVAC, plumbing, pool, or electrical systems. On the other hand, homeowners insurance covers things like roof leaks from a bad storm, fire damage, or stolen personal property. While many people know about homeowners insurance, fewer are informed on the ins and outs of home warranties. To make sure that you are well informed, read on to learn more so that you can make the right decisions about protecting your home.
What You Need to Know About Home Warranties
Home warranties aren’t the most straightforward concept, but fear not -- we are here to tell you everything you need to know about home warranties. Every home warranty is different depending on the company used and the actual contract in place. For that reason, if you really want to know about home warranties, make sure to read your documentation very carefully before signing on the dotted line. Reading the documents closely is important because home warranties don’t cover everything. Your policy may include certain clauses that would make it difficult for you to actually use your coverage in the event of an issue. For example, most home warranties will not cover items that have not been properly maintained -- either by you or the previous owner. So if the previous owner failed to regularly change the air filters in your HVAC system, which caused it to malfunction, your home warranty would not cover it. With that being said, most home warranties are generally structured the same in that they require you to pay a premium in addition to a service fee. You pay a set premium annually or monthly in addition to a service fee that’s charged along with each claim. This is because whenever you file a claim, the company will send a service provider out to your home to investigate the issue. From there, they will determine whether the item can be repaired or needs to be replaced altogether. After that determination, repairs are made or replacement items are ordered based on your exact coverage.
How Much Do Home Warranties Cost?
While the exact cost structure of your home warranty will vary depending on your policy, most people should expect to pay between $300 to $600 per year or $25 to $50 a month. In addition to your premium, you will be charged a service call fee that typically ranges between $75 and $125 whenever there’s an issue. The cost of your home warranty is based on whether you have a single-family home, condo, townhouse, or duplex. If you choose to go with an extended warranty over a basic warranty, you should also expect to pay a bit more for your coverage. Interestingly enough, the size and age of your home don’t usually have a huge effect on the price of your home warranty, unless your home is over 5,000 square feet in size or a brand new build. Expect to pay more in those cases. Finally, you can choose to cover additional structures like guest houses for an extra cost but structures like garages should be included in a basic warranty -- just make sure to read the fine print to confirm your exact coverage.
Benefits of a Home Warranty
The biggest benefit of a home warranty is that it can save you a lot of money in repair or replacement costs. Owning a home is expensive and can come with a ton of unforeseen expenses that can add up quickly. Having a home warranty helps mitigate some of that risk. This is a major reason why a home warranty is often included in the sale of a home. Buyers may be hesitant to spend a lot of their money on the actual home, only to end up paying more in unexpected repairs and replacements months later. A home warranty helps give buyers the confidence and security necessary to pull the trigger on such a large purchase. A home warranty can also be a great option for those who don’t know a lot about home repairs or aren’t sure who to trust when it comes to making those repairs. Home warranties provide their own certified technicians to assess and hopefully repair covered items. This process is often easier for homeowners since they don’t have to find their own repairman or try to address the issues on their own to save money.
Potential Issues With a Home Warranty
While a home warranty has the potential to save you a lot of money, that’s not always the case. As you now know, home warranties don’t cover everything and certain clauses may make it difficult for you to actually use your coverage for repairs and replacement. On the other hand, you could never end up using your warranty at all and feel like your premium costs were wasted on coverage that wasn’t needed. Home warranties also eliminate your ability to choose your repairmen or contractors -- you have to go with those provided by your warranty company. Additionally, you may have little say or choice in the model or brand of replacement appliances offered by your coverage. Furthermore, the entire repairs process may be a bit more complicated and time-consuming when using a home warranty company simply because there are more parties involved.
Are Home Warranties Worth It?
At the end of the day, it’s up to you to determine whether or not a home warranty is worth it for your particular circumstances. For example, first-time homebuyers may want to get a home warranty to protect them from expensive costs that would be difficult for them to cover after using all their savings on their down payment . On the other hand, it may make more sense for homeowners to set aside the cost of a home warranty into a savings account specifically for repairs or maintenance that comes up. That way, you can earn interest on your money and use it when needed. Overall, you should consider your specific risks, benefits, and capabilities when deciding whether or not to purchase a home warranty. With that being said, it’s always a good idea to try to negotiate the cost of a home warranty into the purchase of a new home to sweeten the deal and give buyers a sense of security regarding their massive purchase.
What to Look for in a Home Warranty?
As you now know, the value of a home warranty really depends on the specific contract. Some warranties certainly won’t pay off in the end while others are a solid investment. So how can you tell the difference? The best way to tell is by reading the entire policy from beginning to end. Here are some specific things to look for in a home warranty to ensure that you’re getting the most bang for your buck:
- Claim caps: Some companies cap the cost of repairs or replacements that they will pay within a single year.
- Deductibles: Some companies require you to pay a certain amount in repairs or replacements before your coverage kicks in.
- Exclusions: Some companies will exclude vital (and expensive) appliances or home features that you would normally want to be covered.
- Repair only: Warranty companies will likely try to repair items whenever possible rather than just replacing them to cut down on costs -- no matter how extensive or ridiculous the repair may seem.
- Brand replacements: Warranty companies may not replace damaged or broken items with the same brand. Make sure that they will replace it with a comparable brand.
Final Thoughts on Home Warranties
As you can see, whether or not you need a home warranty will really come down to your personal situation. That being said, there are other ways to cover unexpected repair costs that don’t involve all the fine print and intricacies of a home warranty. For example, you could use a personal credit card to cover the costs. You could also adjust your mortgage through refinancing to get some extra money in your pocket. No matter your situation, contacting Seek Capital for financial assistance could be the solution you’ve been searching for. Sources: https://www.cnbc.com/2020/09/10/always-use-the-30-30-3-rule-before-buying-a-home-during-pandemic-says-finance-real-estate-expert.html https://www.forbes.com/advisor/homeowners-insurance/home-warranties/ https://www.usnews.com/360-reviews/home-warranty/what-does-home-warranty-cover