The Tale of Home Warranties: The Good The Bad The Ugly

As a first-time home buyer, purchasing your future residence can be equally exciting and stressful. According to Housing Wire 30% of Americans are reduced to tears while buying their first home. People have even stated that going to a job interview, hosting a holiday dinner and applying for college are less stressful experiences than buying a house.

The unfamiliarity of buying a home can be overwhelming as decisions pile up. Not only are you deciding where you want to live, but what real estate agent to use, how much of a down payment to make, and whether you should purchase a home warranty.

Most of the previous questions are deciding what. The choices become difficult when you’re deciding if you need to do more. This makes the decision to purchase a home warranty quite debatable for potential homeowners.

Before you decide for or against it, we’ll walk you through the decision-making process with –discussing the good, the bad and the ugly of home warranties.

When offered a home warranty, it may sound like a reasonable way to protect your home from future damage. However, is it worth the money?

Here’s what you need to consider when evaluating what makes sense in your situation.

The Good

The positive aspects of buying home warranties are apparent. If your appliances break down unexpectedly, you can save on repair costs through having the warranty company fit the bill instead of you.

Being able to replace the more essential appliances in your house through a warranty removes the stress of finding an unknown contractor during one of these situations. Running a process through sourcing contractors yourself, eliciting multiple bids and evaluating them, requires quite a bit of time. Even then you don’t know if you have chosen the right company until the end product. Home warranty companies tend to have pre negotiated relationships with contractors which relieves you of a bit of stress as a homeowner.

As a new homeowner, you could save time andmoney, and gain peace of mind with a home warranty, all while keeping your new property protected.

“Home warranties are one more way to protect the biggest investment of your life”, says Brian Kline, a real-estate investor with more than a decade of experience.

“Ask for a home warranty policy. You can either purchase this yourself or ask the seller to purchase it. Be sure to read the policy beforehand. This is not the type of appliance insurance you might have seen advertised on TV.”

So what exactly does a home warranty cover?  “A home warranty is similar to what you would get if you bought a new home from a builder. These are primarily intended to warranty major systems such as electrical, plumbing, roofs, etc.),” he adds. Kline cautions not to confuse home warranty coverage with homeowners or title insurance. Make sure to read your policy carefully, ask questions if you don’t understand any terminology, and consider your options carefully, as with any financial purchase.

The Bad

The main reason people decide against purchasing a home warranty is due to the cost. The most basic levels of coverage can start at $300 per year, although services typically tally in at $500 a year.

This cost can increase further if the home is brand new.

Another strike against home warranty is that the homeowner may have little say about the replacement appliance chosen by the warranty company.

If you’re particular about what furnace you’d like as a replacement, a home warranty might seem restrictive.

As with any insurance – there is always the chance you won’t need it, so you’re putting $500 towards a service you won’t use.

Check all appliances in your potential home before you purchase. If you settle with a house with a 15-year-old furnace, then you’ll likely get much more use out of a home warranty than someone who’s buying a brand-new home.

The Ugly

Even if you purchase a home warranty, if you’re uninformed about its parameters, you may never be able to use it properly.

Most plans don’t cover certain appliances so be aware of what is covered before committing to the premium. Once again, do not confuse a home warranty with home owners insurance.

Homeowners insurance is a contract between you, the homeowner, and a company which provides repairs or replacements on major home appliances. The things covered by home warranty companies are limited, mostly restricted to covering electrical systems, air conditioning, plumbing and your furnace.

A home warranty can be a safety net for some. For others, it is a sunk cost every month if left unused. If you see yourself as someone who wants to hand pick your appliances, and be more self-reliant instead of dependent on a contractor, then you might be better off putting away some cash for an emergency fund and handling any potential appliance repairs yourself. If you choose this option, remember you have to keep the individual warranties for any products in your home up to date.

Is Home Warranty Worth the Cost?

Picture this: you move into your new house and after one month, the air conditioner suddenly stops working, your stove no longer gets hot and worse of all your fridge starts leaking.

To fix all of these issues separately could cost thousands of dollars. Luckily, you decided to get a home warranty for $500 a year and the repairs are covered. This is a real scenario, that happens more than you would think, according to inman.

Having the security blanket of home warranties may be worth the initial cost, at a minimum it’s worth considering.