Is a Home Warranty Worth the Cost?

Did you know that even if you buy an existing home, that you can get a home warranty? You may buy a policy yourself or in some cases, the seller offers it as a part of the negotiations. Even if you don’t buy a policy right when you buy the home, you may have the option to buy one in the future. While it sounds great to know that your home repairs may be covered, is it really worth the cost?

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Understanding the Home Warranty

First, it helps to understand how the home warranty works.

It is not homeowners insurance. You must still carry proper coverage should disaster strike and you need home repairs or complete renovations. A warranty covers specific items within the home should they stop working due to reasons other than disasters, such as fire, theft, or tornadoes. Your homeowner’s insurance covers the other issues and is likely required by your mortgage company.

When you buy a home warranty, you buy protection from a company that will repair or replace major components of the home. For example, if your furnace breaks down, the warranty may cover the cost to replace it. It may also cover other major appliances and utilizes. Each warranty is different; it’s important to read the fine print to know what it covers.

If a system does break down, it’s not the home warranty company that fixes it, but rather the contractors that the warranty company employs. There is no guarantee that they will repair or replace the broken item either. The contractor will come out and examine the issue and bring their findings back to the warranty company. The warranty company then decides if it’s a covered cost. Depending on your policy, you may have a co-pay or deductible you must meet before the warranty company will cover the remaining costs.

The Upside of the Home Warranty

It’s easy to see the main upside of the home warranty – you may save money on major repairs. If you don’t have money set aside for emergency repairs, it can be a good ‘insurance policy’ to have on your side. With the peace of mind knowing that you can have your issues fixed without going broke, it can help you sleep better at night.

Home warranties are also good for the homeowner that doesn’t have the know-how to fix major issues with a home or those that just don’t have time. Maybe you can’t be bothered with calling out various contractors, comparing prices, and determining which one deserves the business. In this case, the warranty could come in handy because all you have to do is call the warranty company and they handle the rest.

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If you buy an existing home, a home warranty can give you peace of mind that even if something does break down right away, you have the coverage to get it fixed. This is why sellers often offer a warranty, at least for one year, in addition to the home inspection that you likely pay for in order to determine the home’s condition.

The Downside of the Home Warranty

Of course, there are downsides to the home warranty that you should know:

  • The warranty company has full discretion – The warranty company can decide if the repair is covered or not. If they find that you didn’t properly maintain the system that broke down, they could easily reject your claim. This can be an area of personal opinion and an area that causes serious concern. In the case of an existing home, the lack of maintenance may not even be your fault, but the fault of the previous owner, of which you have no control over.
  • You may pay premiums for nothing – You pay home warranty premiums on an annual basis. As long as you want the coverage, you pay the premium. You may go a few years without using the warranty at all, which means you paid money for repairs that you didn’t need.
  • You must use the warranty company’s contractors – You lose your say in who works on your home when the warranty covers the costs. You are at the mercy of the warranty company’s contractors, who you may or may not like. If you don’t use them, though, you are on your own for the cost of the repairs.

So is a home warranty worth the cost? It really depends on your situation. Do you have an emergency fund set aside for issues that may occur? If so, you may not need the warranty. If you are strapped for cash after buying the home and making a large down payment, though, it may be a good idea.

Other considerations to make are your ability to fix the issues yourself and your availability to find contractors to do the work when necessary. A home warranty is right for some people and not right for others. Do you have the extra money to pay the premium every year even if the seller covers your first year?

Weigh the pros and cons to determine if it’s the right policy for you. If you can afford the repairs yourself as they come up or better yet, can do them yourself, you may want to have yourself the money.

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