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There are so many things to consider when buying a house. You have to chose a realtor, chose a neighborhood, chose a loan option, and chose whether or not you need a home warranty. Now if you are anything like me, you probably didn’t even realize that home warranties were a thing until your realtor asked if you wanted to purchase one at closing. Hopeful this post will clear that up for you, and tell you anything you might need to know about purchasing a home warranty.
What is a Home Warranty?
A home warranty is a protection plan for your house and the appliances in it. Plans vary widely, as do the things that they cover. Most basic plans cover appliances such as the washer/dryer, refrigerator, oven, dishwasher and hot water heater along with some plumbing and electrical. The top of the line plans also cover heating and air, duct work, and more serious electric and plumbing problems.
What is the Difference Between a Home Warranty and Home Insurance?
You might be thinking that you already carry homeowners insurance, so why would you need a home warranty – they cover the same things, right? Well, not exactly. Your insurance policy probably covers any damage to your house (after the deductible) caused by things that went wrong, but it generally doesn’t cover the cost to repair whatever went wrong in the first place (unless you have an awesome plan!). That’s where the warranty comes in.
A great example is last year when my air conditioning pan decided to start leaking. The rust was so bad that the bottom was completely gone in some places. Since the pan is in the attic, the water leaked through to the kitchen, destroying a light and some pieces of the ceiling.
My home owners insurance covered the cost of the ceiling and the light, but not the cost of the air conditioning pan, because that was considered basic maintenance. However, my warranty plan covered the air conditioning pan and the labor to install it, so I only had to pay a small amount out of pocket to get the entire thing fixed.
Is it Mandatory to Have a Home Warranty?
There is absolutely no requirement for you to get a home warranty. It’s an add on that you can purchase for additional peace of mind.
It is possible that some states might require it, but I’ve purchased homes in four states, and have never seen it as a requirement. I also couldn’t find anything in my internet research to suggest that it would be a requirement in any state.
Do You Need a Home Warranty?
Whether you need a home warranty or not is very different than whether it’s a requirement. There are some instances where it’s better to have one, and some instances where it’s not as important.
When I bought my first house in California, I didn’t get a home warranty. The house was a new construction, and everything was under warranty from the manufacture. There was no need for a warranty in that situation.
There’s also no need for a home warranty if you have enough cash reserves to fix anything that may go wrong (having an emergency fund is always a great idea!). There may be years where I don’t actually use the warranty, and I’m paying $600 “just in case”. But, for me, that’s better than risking having to pay a few thousand dollars at a moment’s notice when something does go wrong (because eventually, it will).
How Do Home Warranties Work?
A home warranty works sort of like insurance. If there is a break down that’s covered under your warranty, you place a service call to the company, and wait for their service providers to contact you for service. The contractors make an appointment with you, repair or replace whatever caused the problem, and you only have to pay about a hundred dollars.
The one disadvantage to the home warranty is that they prefer to use their own in-network repairmen. Most companies will allow you to use an out-of-network contractor if they can’t find someone in a reasonable amount of time, but that means you will need to do all of the follow up and scheduling. You also will need to follow all the guidelines in your warranty contract to ensure proper reimbursement, as most do not pay out of network providers up front.
Are Home Warranties Worth the Money?
My home warranty has been worth it’s weight in gold. I love having it. I had two serious plumbing issues and the aforementioned air conditioner pan leakage issue during my first year in the Savannah house. It would have cost me more than the price of the warranty to fix that issue alone.
There’s also something to be said for having one number to call when something goes wrong. The company contacts any contractor I might need, so I don’t have to research plumbers, electricians, or HVAC specialists. I call the home warranty company and they handle it.
It’s also been great now that I’m renting the house out. During my first year as a landlord, my home warranty was my property manager. My renters called them if something went wrong with the house. It got fixed and all I had to do was log in and pay the service fee.
This only worked because I knew and trusted my renters. Now that I’m renting to people I didn’t know, I use a property manager to deal with any other types of issues that might arise. They find the tenets and take all their complaints, and I only have to worry about problems with the house. But when those come up, I just put in a service request and it gets taken care of.
How Much Does It Cost?
The cost of a home warranty varies depending on what type of plan you get. My Georgia house is on the gold plan, so it covers everything a it can possible cover. It costs me about $650 per year, and $100 per service call.
They only charge one service fee per issue. That means I only get charged once if numerous contractors need to be called. Also, I don’t get charged a service call for the same issue within thirty days, so if it isn’t fixed properly the first time, I don’t get charged again.
Is Home Warranty Required at Closing?
A home warranty is not a traditional part of closing costs, but a good realtor will give you the information you need for a home warranty when you chose to buy a home. You can usually wrap the cost of it into closing costs for the first year – but there is no requirement to do so.
Who Pays for a Home Warranty?
You can negotiate to have the seller pay for the first year’s cost. Lot’s of sellers will agree to show good faith in the condition of the house that they are selling. But they don’t have to. You can also chose to buy one at closing, and chose to continue with it every year.
When I bought my house in Georgia, the sellers agreed to include the warranty in their closing costs – so they paid for the first year. I liked having it so much that I chose to renew it every year after that.
How Much Should I Pay for a Home Warranty?
Most home warranties are similarly priced. You should expect to pay between $400 and $900 per year for your warranty, depending on what coverage options you chose. You will also pay for a service fee every time you place a work-order. These are usually around $100 per call, depending on which plan and company you chose.
Which is the Best Home Warranty Company?
There are quite a few home warranty companies out there and even more options for home warranty plans. So the question is which one is best? And the answer is…it depends.
I know, that’s not what you wanted to hear. But, it’s true. The best is subjective and depends on what you need. For example, Guard Home Warranty offers a plan that only covers systems – air conditioning systems, electrical systems, plumbing systems, etc. This is a great option if you have all new appliances and don’t want to pay to cover them. However, they also have a plan that covers only appliances, and a plan that covers both. Choice home warranty offers optional coverage for items like spas, septic systems, well pumps, so if you have anything like that, they may be the better option. Old Republic has a great price for standard coverage, but they aren’t available in all states.
I do like Guard though, because they have simple and easy to understand coverage options, and they seem to be available in every state.
Ready to Protect Your House with a Home Warranty?
A home warranty isn’t the right fit for everyone. However, if you finished reading this and thought – yes, I need a home warranty! Protect your home with Guard Home Warranty . Their gold plan covers just about everything that you might need, but they also offer custom options for special circumstances (septic tanks, spas, etc.). The peace of mind is often worth the price.
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.