Home Warranties: What Home Buyers Should Know

Your new home purchase is almost complete. As you are working out the final details of the closing, the real estate agent suggests getting a home warranty that will cover certain home aspects in case they break down right after you move in. Scratching your head, you are unsure whether you should get one or if you really need one. We’re going to share some information that all home buyers should know before making a decision about home warranties.

Doesn’t the homeowner’s insurance cover damages to the house? What exactly is a home warranty then? It’s not exactly common knowledge, but it is certainly helpful to know.

Home Warranties: Protecting the Items Inside

Most buyers don’t learn about home warranties until they are searching for a property to buy, or they confuse such a policy as homeowner’s insurance. Yet a home warranty is not the same as homeowner’s insurance.  A homeowner’s insurance policy is designed to protect the structure of the house in case of damage as you receive compensation to make repairs. The home warranty covers the mechanical systems and appliances that are included inside the home in case of wear-and-tear. These policies range in costs from $200 for a limited policy up to $600 for a more comprehensive plan.

Every home warranty is different based on the amount of coverage offered. Generally, a policy will cover these aspects of the home:

• Plumbing systems
• Electrical systems
• Heating and cooling systems
• Most major appliances (washers, dryers, refrigerators, garbage disposals, and stoves)

There are three ways to get a home warranty. As the home buyer, you may decide to purchase one through a home warranty provider when buying an existing home. Many people will purchase a policy when they are getting older homes or ones that have gone into foreclosure because they are unsure of the age of the appliances and mechanical systems in the house.

Another way to obtain a policy is when a seller purchases one that is included in the sales agreement. They will use the policy as an incentive to get people to buy a house. The policy usually just covers the items for one year as the buyer can decide whether to extend the coverage.

If you are purchasing a newly-constructed or custom house, the home warranty may already be included in the sales agreement as it may be called a home builder warranty. A home builder warranty will cover the structure from defects, along with appliances and mechanical systems, for a limited time.

Advantages to a Home Warranty

A home warranty is designed to give you peace of mind that the moment you move into a home, you won’t find all the systems breaking down through no fault of your own. If something breaks down, you can call the home warranty provider. The provider will then handle the details of contacting a third-party repair company to fix the issue, or provide you with the contractor’s information.

Another advantage to a home warranty is that the policy covers items if they break down from age and use, not just damage from natural disasters. So for older homes where you are not replacing any of the mechanical systems or appliances, you will know that they will be fixed without shelling out large amounts of money.

Disadvantages to a Home Warranty

You need to understand that a home warranty only covers items that were working when you purchase a home. If the appliance was not working from the start, the policy will not pay for repairs or replacement. Also, you can’t expect the home warranty to give you brand new appliances, furnaces and air conditioners the moment these systems break down. The home warranty provider will see if these items can be repaired first.

In addition, you will typically have to make some type of payment, such as for the service call or paying for costs up to the policy deductible. Another disadvantage is that you don’t normally have a say on who you want to have work on the repairs. You will have to contact the service provider that the home warranty provider specifies.

There are many pros and cons to home warranties. Research the different companies who provide such policies and learn about the coverage details before deciding to purchase one.