Home Warranty 101

Buying a home comes with many questions. What features are most important? What is the best rate? What is my price range? As if you needed another question to ask, there’s the question on if you should purchase a home warranty or not. Let us explain a few things about home warranties to help you make an informed decision.

What is a Home Warranty?

A home warranty is a contract provided by a home warranty company to a homeowner to provide discounted repair and replacement services on major pieces of the home, such as the furnace, air conditioning, plumbing, and electrical systems. A home warranty could also cover other major appliances, such as washers and dryers, refrigerators, and swimming pools.

A home warranty is not the same thing as homeowner’s insurance, which covers events such as fires, hail, property crimes and some types of water damage that could affect the entire structure of the home or the homeowner’s personal belongings.

Most plans have a basic component that provides all homeowners who purchase a policy with certain coverages. Homeowners can also purchase additional components that provide other coverage for an additional cost.

What to Consider with a Warranty

A home warranty can cost a few hundred dollars a year. The plan’s cost varies depending on the property type—single-family detached, condo, townhouse, or duplex—and what type of warranty plan the homeowner chooses.

The age of the home usually doesn’t affect the cost of the warranty, unless the home is brand new, which increases the cost of coverage. The home’s size also doesn’t usually matter, unless it’s more than 5,000 square feet. Separate structures, such as guest houses, usually are not covered by the basic policy, but can be covered for an additional cost, but garages should be covered by the basic policy.

In addition to the cost paid for the warranty each year, home warranties charge a service call fee which can range from $50 to $125 each time the warranty holder requests that a problem be checked. If the problem requires more than one type of contractor to visit, there may be separate fees for each.

Some problems won’t be covered by the warranty, whether because the homeowner didn’t purchase coverage for that item or because the warranty company doesn’t offer coverage for that item. A problem warranty holders run in to is claims being denied for something that was considered to not be cared for properly and at the end of it all, if the warranty company denies the claim, the homeowner will not only still pay the service fee, but cover the full repair costs also.

Benefits of Home Warranties

A home warranty is meant to protect against expensive, unexpected repair bills and provide peace of mind for a homeowner. Someone who doesn’t have an emergency fund or wants to protect their savings can use a home warranty can act as a buffer. Home warranties also make sense for people who aren’t handy or don’t want to worry about tracking down a contractor when they have a problem or for people with expensive appliances.

The subject of home warranties often comes up during the sale/purchase of a home. A home warranty may provide reassurance to a buyer who has limited information about how well the home has been maintained or how well a newer home has been built. A warranty can also be helpful for people who have depleted their savings to buy a home and want to avoid any additional major expenses.

A seller paying for a year-long home warranty with the buyer’s home purchase may provide a measure of protection against complaints about any home defects that arise after the sale closes. However, providing a home warranty does not exempt the seller from the legal requirement to disclose known problems with the home.

Making Your Decision

A home warranty is not a perfect solution to the risk purchasing a home could bring. Before purchasing one, read the fine print in the warranty contract and consider whether the warranty is likely to pay off. Sellers who want to offer a warranty to a buyer should do careful research to find a reputable home warranty company that will pay for legitimate repairs when they are needed.

The right warranty can be helpful in many cases, just choose carefully, know what you’re getting and if it is necessary. If you’re unsure, ask one of our Loan Officers what they would do in your situation. We are here to help with your entire home buying process!