If you have bought a house or are about to buy one, someone will mention the need for a home warranty policy. However, the big questions are what they cover and whether or not you really need them. We are here to help you find the answers to these questions.
What is a home guarantee?
A home warranty is essentially an insurance policy that covers your home. This policy should not be confused with homeowners insurance, which covers damage or loss to your entire home or property (eg fire, flood, etc.).
The home warranty covers items in your home that break or malfunction. The home warranty company you contract with will send someone to help you fix it, pay for any damage, or completely replace the item.
Items covered by the home warranty include electrical systems, HVAC units, stoves, and major home appliances such as refrigerator, dishwasher, washer and dryer.
Depending on the company, there may be additional coverage options you can choose from. The inclusion is called an “extended warranty” and may increase the cost of your insurance premiums.
How much is a home warranty?
Housing guarantees can cost hundreds of dollars a year and often must be paid in full. Some companies offer payment plans to spread the cost to the new homeowner.
Factors that affect the cost of a home warranty include:
- The company itself
- Location and type of home (e.g. single-family, condominium, townhouse)
- Selected scope of coverage (basic or extended)
- Age of property (newer homes tend to be more expensive)
- The need to cover additional living quarters on the site (this is called a “comprehensive home guarantee” and is often not included in basic plans)
Factors such as the size of the home have nothing to do with the cost of home warranty plans.
In addition to insurance premiums, there is a home warranty inspection fee that customers must pay after filing a claim. This fee ranges from sixty to one hundred dollars per person who comes to the house to conduct an inspection.
The fee must be paid even if the inspector thinks the problem cannot be fixed by the warranty company or if they state that the plan does not cover the damage.
Best Home Warranty Options
There are several home warranty companies on the market. They all have different reputations and provide different benefits. Some of the most popular in the US include:
- Best Overall: American home shield
- Best Basic Plan: Home Choice Guarantee
- Best value: Choose a Home Guarantee
- Most Responsive: Freedom Militia
- Best for customization: AFC home club
- Best Home Appliance Coating: First American Home Warranty
- Best Extra Perks: Cinch home services
Different companies may be distributed in other cities, which may affect your options. Talk to your real estate agent to understand what’s popular in your area and get feedback on what’s popular with homeowners.
What to Consider When Considering Home Warranty Company Options
If you are interested in purchasing a home warranty, be sure to ask the following questions:
- What does the home warranty cover? See what specific issues the policy includes.
- How much is the premium?
- What is not covered or what are the exclusions listed in the policy?
- What is the cost of calling the service? And what is the average time to a home visit?
- What local contractors do they usually work with?
Benefits of having a home warranty plan
There are several advantages to buying a home warranty.
Plan purchased at the first buy a new house can be helpful because it can provide a buffer against common problems that may arise, especially in the first year as you adjust to new devices and a new environment.
If you don’t know how to use tools and make repairs, a home warranty policy can also give you the ability to get the job done quickly. In addition, this coating reduces the final cost of repairs.
Usually the seller of the house offers the buyer of the house a one-year warranty. This may provide some financial stress relief and security to avoid costly problems that may arise in the future.
Cons of Home Warranty Protection
While having a buffer to buy a new home sounds like a great idea, there are a few downsides to a home warranty.
First, most warranties are strict in what they cover. If the warranty does not cover the problem that needs to be fixed or does not cover the full cost, then you are also paying out of pocket to have someone else fix the problem over and above the premium. Plus, you still pay for an inspection when you need to call a home visit professional to see if the issue is covered by the home warranty.
This gray area can cause a lot of frustration and heartache for new homeowners who rely on a financial buffer.
If the warranty covers what you need, the company will hire the local contractor you need. This sounds great in theory, but you, as the customer, have no say in who the contractor is. As we all know, all contractors are not created equal. In this case, you are stuck with what the warranty company gives you.
You may also not have problems for several years after moving into your home. In this case, you pay a premium without any benefit. This money could be better placed in a high-interest emergency fund or invested in the stock market.
This opportunity cost is something to calculate and consider before purchasing a home warranty.
Home Guarantees Summary
Home warranty may not be the best choice for everyone. This is a personal decision and should depend on what kind of home you are buying and your financial situation.
If you’re not sure if this is the right choice for you, you can ask the seller of the home you’re interested in to pay for a one-year warranty. In this case, you will be able to choose a home warranty company. So it’s not your financial burden, you get the benefit of a potential buffer if something goes wrong with the house and you can cancel it after a year if you don’t need it anymore.
Final Thoughts
There is no right or wrong answer to the question of buying a home warranty. As a new homeowner staying on budget after such a big purchase and spend money wisely is mandatory. As with any major decision, it is important to have the best information in order to make the most appropriate decision for you and your family.
