Thursday, 7 February 2019
Home warranties have become much more common over the past few years.
Much of this growth has been fueled by the real estate industry, as sellers are often encouraged to provide a home warranty as a tool to entice buyers. In addition, buyers will often ask sellers to include a home warranty when negotiating the sales contract.
But home warranties aren't only available through real estate transactions. A homeowner can purchase one at any time by contacting a reputable home warranty company.
But before you purchase a warranty — which can run anywhere from $350 to $600 a year — it's important to understand what a home warranty covers and the costs associated with using the coverage. Only then you can determine if purchasing a home warranty is a smart financial decision for you.
For starters, a home warranty is not the same as homeowner's insurance. Your homeowner's insurance covers damage to your home due to unavoidable circumstances such as fire, wind, hail, or theft. If you have a mortgage on your home, this coverage is required by your lender and premiums are typically included in your monthly mortgage payment.
A home warranty, on the other hand, is actually a service contract for your home, like one you might purchase when you buy a computer or wireless phone. This type of protection covers qualifying repairs during a certain period of time. Typically, a home warranty covers items such as appliances, plumbing, heating and air conditioner unit, water heater, whirlpool tub, and exhaust fans.
During the warranty period, if you experience problems with any of the covered items, you call the warranty company. They will send a contractor to your home to diagnose the problem and determine how to fix it. In most cases, you will pay a fee ranging from $50 to $125 for the contractor to come to your home. If the problem is covered under the warranty, you should not have to pay for the repair.
However, most home warranty companies will not fix items that break or fail due to lack of proper maintenance. And the warranty company may disagree with the homeowner about what constitutes proper maintenance.
Needless to say, it's important to carefully read the service agreement and understand precisely what the warranty will cover before you sign a contract.
If you're purchasing a home and the seller or builder is providing a free warranty, it makes sense to take it. After all, it won't cost you anything. However, take the time to familiarize yourself with the fees associated with using the coverage before you contact the warranty company for a service call.
If you're considering purchasing a home warranty, again, review the coverage carefully and understand what maintenance requirements you must meet before you can use the coverage.
If you are committed to regular maintenance and like the idea of having one point of contact to provide repairs for multiple systems in your home, spending several hundred dollars on a home warranty may be a good deal.
Before you spend money on a warranty, consider other coverage you might already have. For instance, if your home has new appliances, they should be covered under a manufacturer's warranty for at least a year or more. And if your home is brand new, a builder's warranty may cover most of the items a home warranty would include.
Can you afford to pay for repairs? If you have sufficient savings to cover any necessary repairs or replacements, spending several hundred dollars on a warranty doesn't make much sense. Also, if you already have reliable professionals who you trust to make home repairs, you won't need the home warranty company to help you locate contractors.
An annual premium of $350 to $600 — plus $50 to $125 per service call — is a lot of money to spend. Before you buy a warranty, it just makes sense to carefully review the coverage, understand how it works, and determine if you really need it.
The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates.
Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA Compass does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.
Are you a millennial or first-time home buyer? Check out our guide to homeownership to prepare for the big purchase and get great tips for buying a home.
Buying or refinancing a home can be one of the largest and most complex financial decision most of us will ever make.