If you have started the process of buying a home you may have thought “What is a Home Warranty” and “Do I need a Home Warranty” and “Is a Home Warranty the same as Home Insurance”? I am going to answer these questions for you and I will also explain what a home warranty covers.
I find that some of the buyers I work with have either never heard of a home warranty or just don’t know what a home warranty is. This is because the home warranty part of buying a home has never been widely popular.
There are almost as many home warranty companies out there as there are insurance companies. They all have different levels of coverage and different prices. You should always check around and get information from a few different companies before choosing one.
What is a Home Warranty?
A Home Warranty is a type of coverage on specific items in a home for a specific amount of time.
What does that mean?
It means that a home warranty will cover the cost to repair or replace anything covered in the home warranty contract if it malfunctions or breaks with in the coverage period.
There will be a service fee involved, you should check with the companies you are considering to see what the service fee is. The service fee should be less than $100.
What is Covered in a Home Warranty?
You will have to pick a level of coverage. The Better the coverage or in other words the more items covered in a home warranty the higher the price will be. You can also add individual items to your coverage with most companies, like a pool/hot tub, septic tank and well, etc.
In a standard home warranty, only the basics will be covered. This will include items like Furnace, Central Air, Hot Water Tank, Stove/Oven, Refrigerator and Dishwasher. Again, every company is different so you should check with the companies around you to see what they cover on each policy.
How Long is a Home Warranty Policy?
Typically, a home warranty policy will be good for one year (12 months). I have seen a few that offer a slightly longer coverage period of 13 or 14 months.
One year is not very long so you will need to determine if it is worth the money to have coverage for one year. I do know that if something breaks in the first year you own a home you will be so glad that you have a home warranty but if you don’t you will kick yourself for not buying it.
How Much Does a Home Warrant Cost?
This will vary by type of coverage and location. A basic policy should be between $300 and $500. An upgraded policy with all the extra coverage should never be more then $900.
If you are buying a house you can always ask the seller to pay for the home warranty, some homeowners offer a home warranty with the sale of their house as an incentive to buy it. Sellers will usually factor the cost of the home warranty into the sale of their home so you may end up paying for it with a higher purchase price, but if you are working with a good Realtor, they will help you get the home and the conditions you want for the best price possible.
Do I Need a Home Warranty?
This is a good question and also a tough one to answer, but I will try.
When you buy a home, you should always get a home inspection. The Home inspector will give you his best opinion on the condition of the home but there is not one single home inspector out there that can predict the future. What this means is that you, with the help of your Realtor and Home Inspector, will make an educated guess on the value of the home and its current condition.
This type of situation when you boil it down is basically a gamble. You are going to “hope” things don’t break or at least last for a certain amount of time after you buy the home.
Buying a home warranty policy takes the gamble out of the first year you own the home. You will not need to “hope” nothing breaks the first year you own the home.
Buying a home warranty will also help ease your concerns about the home for the first year as well. You will not have to worry about anything covered in the home warranty policy during the term of the policy.
I would also like to point out that the first year you own your home you usually have less extra money to fix things that may break in your home. This is because most people use up all of most of their savings for the down payment and closing costs to purchase that home.
If the furnace goes out during the first year you own the home it could cost you three or four thousand dollars to have it replaced but if you have a home warranty it will only cost you’re the $60 or $80 service fee to have it replaced.
As you can see it is a risk to not have a home warranty but at the same time there might not be anything that breaks in that first year.
Is a Home Warranty the Same as Homeowners Insurance?
The short answer is NO.
In definition they are very similar and in theory they are the same thing but what they cover is what makes them different. Home insurance, depending on your policy will cover catastrophic events like fire, hail, wind, tornado, etc.
A home warranty simply covers specific items to make sure they continue to work. A hot water tank may break with out having any type of catastrophic event happen. A home warranty will cover it and homeowner’s insurance will not cover it.
You should always have a home insurance policy on a house for as long as you own it but you don’t have to have a home warranty unless you feel you should. You can and maybe should have both.
Some home insurance companies offer addons to their policies that essentially turn them into home warranties. You should ask you home insurance provider about this. I also see some mortgage companies that offer home warranties with the mortgage. You should definitely try to find out if your mortgage company offer this with the purchase of the home, it never hurts to ask.
You may find some Realtor push home warranties and some don’t. It should really be considered on an individual case. If you have $10,000 in savings after your down payment and closing costs then you may not need a home warranty. If you only have $1,000 in savings after your down payment and closing costs then you might want to think about getting the home warranty.
I hope that I was able to help you understand home warranties and if you have any questions please leave a comment or send me an email.
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