Home Buying a Home Guide to Home Warranties

Guide to Home Warranties

by Craig Barrett
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It’s Murphy’s Law that as soon as you move into a new home, things start breaking down. However, with a home warranty, you can avoid the stress and worry that comes with expensive, unforeseen repair bills. A home warranty is designed to give you financial peace of mind, especially if you’re a first-time home buyer.

What Is a Home Warranty?

While a home inspection may pick up issues with a home’s structure, foundation, electrical or plumbing system, it won’t be able to predict if a washing machine will break down three months after you move in.

A home warranty, on the other hand, will cover the cost of the repair or replacement of certain appliances and systems, such as washing machines, refrigerators, air conditioners, hot water heaters, and more.

Like a home inspection, a home warranty is optional but it can be money well spent by both buyers and sellers. A first-time home buyer may want to purchase a home warranty to make the process of moving and settling in less stressful if finances are tight. Sellers can make their home more attractive to buyers by marketing it with a home warranty, especially if the appliances aren’t brand new.

What Does a Home Warranty Cover?

It’s a good idea to check exactly what a home warranty covers before you buy one. Most plans come with a basic coverage component, and optional extras that provide additional coverage. For most first-time home buyers, a basic home warranty will be sufficient but if you’re buying a home with older appliances – it can be worth paying a little more.

Here are some examples of appliances and systems that may be covered in a home warranty plan:

  • Washer
  • Dryer
  • Refrigerator
  • Oven range
  • Furnace
  • Hot water heater
  • Plumbing system
  • Garbage disposal
  • Air conditioner
  • Ceiling fans
  • Range and oven
  • Garage door system
  • Doorbell

What Doesn’t It Cover?

As you can see there are quite a range of appliances and systems a home warranty can cover, but certain plans may cover certain things and exclude others. Home warranties may not cover:

  • Outdoor items, such as sprinklers, spas or swimming pools
  • Faucet repairs
  • Items that were broken prior to closing
  • Unusual wear and tear

Be sure to check your specific policy to learn what is and isn’t covered before purchasing.

Home Warranty vs Home Insurance

If I have home insurance, do I really need a home warranty? It’s a good question, because although these might seem the same, they actually cover different things.

Insurance covers unexpected events such as fire, floods or theft that cause damage to property, as well as theft of belongings. A home warranty covers the replacement or repair of appliances and systems that break down from age or wear and tear.

If you want total peace of mind, it’s best to have a home warranty as well as home insurance. Unlike insurance, home warranties can be transferred to a new owner, making them a good investment for sellers.

What Are the Benefits of a Home Warranty?

A home warranty is something that you may think is an unnecessary added expense but it can actually come in handy in the following scenarios:

If you don’t have an emergency fund

A home warranty can act as a buffer if you don’t have any emergency savings. Rather than waiting until you have the money or taking out a loan, you can immediately get the issue sorted.

If you don’t want to source contractors

A home warranty plan means you get access to dedicated service providers 24/7. This can save you time and effort ringing around to source a contractor.

If you have limited information about the home

A home warranty provides reassurance if you’re a first-time home buyer and you have limited information about how well the home’s appliances have been maintained or how well the home has been built.

If you don’t want buyer complaints after you’ve sold

Offering a one-year home warranty paid up-front with the purchase can protect you against buyer complaints if any defects arise after the sale closes. (However, you still have a legal requirement to disclose any known problems before closing.)

How Much Does a Home Warranty Cost?

In general, home warranties range from between $300 to $600 and are usually prepaid in advance for a year and billed monthly. They can be renewed when they expire.

How much you’ll pay depends on your property type – single family home, condo, townhouse – and the service plan you choose – basic or optional extras. Sometimes warranty companies offer specials or discounts, or additional cover for the same price.

Will I Still Pay For Repairs If I Have a Home Warranty?

It depends if the repairs in question are covered by the home warranty plan. That’s why it’s important to read the policy carefully and check what your plan does and does not cover before you sign. For instance, if you’re moving in during the colder months and you’re unsure about your home’s heating system, then it’s a good idea to make sure the plan will repair or replace the furnace or hot water heater if it fails.

Another thing to remember is that while you’ll be exempt from paying any repair costs or the cost of the replacement appliance, you will be charged the service call fee of each contractor who visits your property.

You’ll also end up paying for the service call and repairs if the warranty company denies your claim because of improper maintenance, code violations, unusual wear and tear or improper installation. They also are unlikely to pay if an appliance had a pre-existing conditional that was disclosed in a home inspection.

Is a Home Warranty Worth It?

To decide if a home warranty is worth it, you need to factor in the type of property you’re buying and your financial situation. If you have no emergency funds or you need the cash for renovation expenses, then a home warranty can be a wise investment. Unexpected repair bills to major appliances can strike at a moment’s notice leaving you thousands of dollars out of pocket and worse off financially in the long run.

Interested in buying or selling a home? We would love to help!

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