Is a Home Warranty Worth It?

Buying a house with a home warranty can help you avoid paying for expensive repairs if an appliance fails. And they always seem to break the second after you move in. Homeowners selling their house to you may offer a home warranty to give you extra peace of mind. Or, you may be a first-time homeowner and want to protect yourself from the cost of unforeseen home repairs. Wondering if paying the annual premium for a home warranty is worth it? We’ll break it down for you. 

As with all types of warranty packages, there are certain advantages and drawbacks to a home warranty. If a major appliance fails, like your furnace, a home warranty could potentially save you $1,000s in repairs. But major appliance breakdowns don’t happen that often. In the years when everything works fine, you still have to pay the premiums.

 

What is a Home Warranty?

A home warranty is a service contract that covers the repair costs for many household appliances. These can include fixing large kitchen appliances and repairing the heating and air conditioning (HVAC), plumbing, electrical systems, and even swimming pools. Is a home warranty the same as home insurance? No, they are two very different animals. 

A home warranty repairs or replaces home systems that fail or are damaged due to normal wear and tear. The purpose of a warranty is to save you money if something unexpectedly breaks or stops working. The warranty doesn’t cover structural parts of your home or accidental damage to appliances. So a home warranty wouldn’t cover things like a roof repair, or if your child thinks the dishwasher is a giant Play-Doh Fun not-so-fun Factory.

Homeowner’s insurance protects you financially for damage to your home or possessions due to fire, theft, storms, and other major perils. For example, your home insurance will replace appliances damaged by fire and pay for any work required to restore your home. 

How it works

Each year you pay a premium to the home warranty company, and the cost is usually between $300 and $600. But your mileage may vary. If you have items not covered as a standard, such as a septic tank or swimming pool, you may have to pay an additional premium. 

If a large appliance suddenly stops working or your HVAC breaks down, the home warranty company sends its approved service provider. You don’t get to choose who comes out to take a look at the broken appliance. The service provider will examine the issue and, if the warranty covers it, they’ll repair or replace the item. As with all insurance policies, you may have to pay a small deductible or service fee. 

In most instances, if something major fails in your home, what you’d pay with a home warranty would be a fraction of the total repair bill if you were paying out-of-pocket. 

The Pros of Purchasing a Home Warranty

If you are buying a home, what are the advantages of buying one with a home warranty? Here are some of the benefits of having a warranty.

Peace of mind

For many new homeowners or first-time buyers, a home warranty is worth it for peace of mind. In a new home, it is difficult to know the service history of appliances and their age. Also, if you have just moved to a new city or neighborhood, you may not have contacts with local repair companies. 

A home warranty lets you know that if something breaks, a professional will repair the problem.

Easy to budget 

Another advantage of a home warranty is that financial planning is easier. This is especially true if you don’t have a home repair fund in case of an emergency. You might have sunk all your spare cash into the downpayment and closing costs of the home. 

With a home warranty, you know exactly how much annually or monthly you have to pay. You don’t have to worry about getting a huge repair bill in winter if your HVAC system fails. 

Some first-time homeowners use a home warranty as a stopgap until they save up enough for an emergency repair fund. When they have these savings, they cancel the home warranty.

Convenience

For many homebuyers, buying a new home with a warranty has the benefits of convenience. If something unexpectedly breaks down, a simple call to the warranty provider is all that is needed to get the problem resolved. You don’t have to spend time Googling for a decent HVAC repair service in the dead of winter. 

Can save you money

One of the biggest advantages is that a home warranty can save you money. If you have an old home or expensive appliances, you could avoid having to pay crazy repair bills that drain your emergency fund. According to HomeAdvisor, the cost of a full HVAC replacement can be upwards of $5,000. If your home warranty costs $350 a year, it is easy to see how much you can save.

The Cons of Home Warranties

Even though a home warranty has many advantages, it may not be worth it for every homeowner. 

One of the drawbacks of paying for a home warranty is that not all appliances may be covered. For example, most home warranties state that an appliance should be properly maintained. In many cases, it can be difficult to prove this, and the home warranty company can easily dispute the case. 

Also, in the case of buying a home with a warranty, it is impossible to know if the heating and air conditioning systems were adequately maintained. 

As with many types of insurance policies, you may pay premiums on a home warranty without ever filing a claim. So, it’s a bit of a gamble, even though it could potentially pay off. 

Is it Worth Buying a Home Warranty?

If you are a new homeowner, it is important to weigh up the pros and cons of buying a home warranty. In all cases, you should read the terms and conditions carefully to see what is covered and what isn’t. 

When is it worth getting a home warranty? For example, you are planning to buy a home, and you arrange a home inspection. The inspection report reveals that some appliances and home systems are reaching the end of their lifespan. The home warranty could offer you financial protection from expensive repairs. 

If you buy a new build home, you probably don’t need a home warranty. The builder’s warranty should cover repairs to HVAC systems for between 2 and 10 years. Also, any new appliances in the home are covered by the manufacturer’s warranty. 

Selling Your Home with a Warranty

 If you are selling your home, you should think about offering a home warranty as part of the deal. In most cases, this will speed up the sale of your home. This may be especially attractive to first-time homeowners who may be concerned about the cost of future repairs. 

Most seller’s home warranty policies require that appliances and systems have been appropriately maintained. So, offering a warranty as part of the sale package gives new homeowners great peace of mind. 

Bottom line? A home warranty can save money if something major suddenly breaks down. But, it’s essential to weigh up the pros and cons of a home warranty. Your tolerance for risk will also play a role in your final choice. Sometimes, having an emergency fund to cover unexpected repairs could work out better in the long run.