Guest post from the Money.com team.
You think you’ve checked all the boxes when it comes to understanding the cost of purchasing a home. You’re confident you can manage your mortgage principal and interest payments each month. You’ve budgeted for property taxes. You’ve hired a professional home inspector to uncover any construction or mechanical system problems in your property so there won’t be any costly surprises down the road. But as every seasoned homeowner will tell you, there are always surprises. Some minor, some major, but all worthy of consideration when you budget for maintaining your home.
Experts recommend that homeowners set aside between 1% and 3% of the purchase price of their homes to pay for repairs. That can add up to a pretty penny. And that’s one reason many homeowners decide to invest in a home warranty—a product that can help you budget more easily for home repairs and protect large, unexpected maintenance expenses.
What Is a Home Warranty?
Let’s start with what they are not. Technically, a home warranty isn’t an insurance policy. It’s a contract between a homeowner and a home warranty company. Home warranties aren’t subject to the same regulations that govern the insurance industry, for example. But home warranties do share some features with insurance policies that you’ll recognize. You’ll pay a monthly premium for home warranty coverage. If you make a home warranty claim, you’ll pay an out-of-pocket deductible for each service call required to fix your maintenance problem. Your coverage will have pre-determined coverage limits and exclusions. In short, home warranties are fairly complicated instruments and you should be sure you understand all of the provisions of any warranty you’re considering purchasing.
Home Warranty Coverage Basics
Most home warranty companies offer two types of protection: system coverage and appliance coverage. When your shower starts leaking unexpectedly and you need to call a plumber or your central air fails in the dog days of summer and you need an HVAC contractor pronto, system coverage kicks in. If the self-cleaning feature of your oven is on the fritz, that repair would be covered under the appliance portion of your warranty. Most home warranty companies give consumers the choice of carrying one type or both types of protection.
The best home warranty companies allow you to customize your plan to a degree. You can choose both system and appliance coverage or one or the other. Some homes feature less common amenities than others. For example, not all homes have a pool, hot tub, or trash compactor. But for those that do, home warranty companies typically offer riders to cover these items—another term you may be familiar with if you’ve purchased homeowners insurance before.
Choosing the Best Home Warranty for Your Home
The best advice we can give you is to shop around. Home warranty costs and coverage varies by company. Take the time to compare contracts and find the best value, bearing in mind that the cheapest policy isn’t necessarily your best choice. Then consider your home features. If you live in a newly constructed home, all of your systems and appliances are brand new and under factory warranty. A home warranty may not be worth the cost until your manufacturer and construction warranties expire.
It’s also a smart idea to get online and visit such sites as Trustpilot and the Better Business Bureau. See what other customers are saying about the company you’re considering doing business with. Read any consumer complaints registered on those sites and avoid companies that are unfavorably rated or rack up a ton of negative comments.
Home Warranty Q & A
The home warranty industry gets a bad rap sometimes. Customers complain about frequently denied claims or having to pay multiple deductibles for the same problem when the first service call doesn’t fix a problem. Some complaints arise from homeowners not understanding the details of their contracts. So be sure you know what you’re getting into before signing a contract.
Are Home Warranties Worth It?
A home warranty is like an insurance policy in one more crucial way. You purchase it to hedge against large expenses. If you live in an older home or your appliances are showing some wear-and-tear, you’re more likely to use your home warranty frequently. But you may never make a claim and, if that’s the case, you may feel like you spent money on something you didn’t need. But home warranties, like insurance policies, do provide peace of mind. That’s a significant part of their value.
Advice for New Homeowners
Realtors often encourage home sellers to include up to a year of home warranty coverage to homebuyers. Some home sellers do so to reassure buyers that they’re purchasing a solid home and their first year’s maintenance expenses won’t be overwhelming. If a seller doesn’t proactively offer a home warranty, consider including home warranty coverage in your purchase and sale agreement.
If your home requires maintenance that’s covered under a seller-provided warranty, see how satisfied you are with the service you get. If you’re unhappy with it, you’ve learned something. If you decide to continue to pay for coverage, you can select a different home warranty company. You’ll have learned something along the way and are better equipped to make an informed choice.