How a Home Warranty Protects Your Most Crucial Asset

Buying a house is one of the most stressful events of our lives. It’s the most expensive item we will ever buy, and so much goes into it. 

You must choose a realtor, a neighborhood, loan option, and then go through all the stress of making an offer and filling out boatloads of paperwork. 

One thing that might get overlooked is a conversation about a home warranty. Here’s why it’s essential to explore home warranties before closing. 

What is a Home Warranty?

A home warranty is a protection plan for your house and appliances. Plans and the items they cover vary widely. 

Most basic plans cover appliances such as the washer/dryer, refrigerator, oven, dishwasher, water heater, and some plumbing and electrical work. Top-of-the-line plans cover heating, air, ductwork, and more serious electric and plumbing problems.

What is the Difference Between a Home Warranty and Home Insurance?     

Many first-time homeowners mistakenly believe home insurance covers most problems that arise, so getting a warranty on top of insurance is overkill. 

That’s not true. The two products cover different things. 

A home insurance policy covers any damages caused by things that went wrong, but it generally doesn’t cover the cost to repair whatever went wrong in the first place. It also doesn’t cover any maintenance issues with your HVAC, plumbing, electrical system, or appliances. 

That’s where the home warranty comes in. It covers those gaps, ensuring you won’t have to pay for costly repair work out of pocket. 

Insurance vs Warranty: Air Conditioning Problem

A few years ago, I experienced a home maintenance disaster that perfectly encapsulates the difference between homeowners insurance and a home warranty. 

My air conditioning pan sprung a leak. It was dated, with more rust than metal. The rust completely ate through the bottom in some areas. Because the pan was in the attic, the water leaked into the kitchen, destroying a light and some parts of the ceiling. 

My homeowner’s insurance covered the ceiling and light repair but refused to cover the AC pan because they considered that basic maintenance. However, my home warranty plan covered the pan and labor to install it, so I only had to pay a small amount out of pocket to resolve the entire problem. 

Is a Home Warranty Mandatory?

There is absolutely no legal requirement to get a home warranty. It’s an add-on that you can purchase for additional peace of mind. 

However, if you are tightening your budget to afford a home, a warranty may save you a lot of heartache and financial distress. A few hundred dollars upfront could save you thousands in the long run. You should consider getting one if you don’t have thousands of dollars to spend on costly repairs. 

Do You Need a Home Warranty?

There are some instances where it’s better to have one and others where it’s not as important.

I didn’t get a home warranty when I bought my first house in California. The house was a new construction, and everything was under warranty from the manufacturer. 

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. You might not need a warranty if you have a fully funded emergency fund with plenty of cash for anything that could arise. 

However, consider the worst that could go wrong before making that decision. The most expensive home repairs could cost upwards of $100,000. Sewer line repairs could run you $25,000, while a roof replacement can run as high as $20,000. Insurance may cover some of these costs, but it doesn’t always.

You may not use the home warranty, but paying $600 for peace of mind is often better than risking a massive cost you weren’t prepared for.  Eventually, something will go wrong. 

How Do Home Warranties Work?

A home warranty works like insurance. 

When something breaks, you call your warranty holder. They will contact their preferred service providers, who will contact you for service. The contractors will work with you to schedule an appointment to repair/replace whatever caused the problem. 

Most home warranty companies charge a service fee every time you call in a problem, which is typically around $100. The plus side is that’s usually all you must pay for covered service. 

The one disadvantage to the home warranty is that they prefer to use their in-network maintenance specialists. 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 the follow-up and scheduling. 

You must also follow all the guidelines in your warranty contract to ensure proper reimbursement, as most do not pay out-of-network providers upfront. 

Are Home Warranties Worth the Money?

If you have an older house, a home warranty could be worth its weight in gold. 

I had two serious plumbing problems in my first year and an AC pan leak. If I had to pay out of pocket, these repairs would have cost me thousands of dollars. Luckily, I had the home warranty, so I only spent a few hundred dollars on everything. 

It’s also worth the money psychologically. Who do you call if the AC goes out, the bathtub springs a leak, or the oven stops working?

With a home warranty, you no longer have to call a bunch of different contractors and shop around for service. Your provider does that work for you, so it’s one less thing you have to think about in an emergency. 

Home Warranties and Rentals 

Home warranties can benefit real estate investors as well. 

During my first year as a landlord, my home warranty served as my property manager. If something went wrong, the renters simply called the warranty company, who fixed the problem. 

However, that system only worked because I rented to friends. When they moved out, and I rented to strangers, I used a property management company. You can arrange for the property manager to coordinate with the home warranty, or you can handle those issues yourself. Either way, using the home warranty company may save you thousands of dollars in repairs. 

How Much Do Home Warranties Cost?

The cost of a home warranty varies depending on what type of plan you get.

Depending on the company and coverage options you choose, your home warranty’s yearly premium could range between $300 and $900. Many give you the option to pay monthly or annually. 

Most companies also charge a service fee, ranging from $75 to $125 per issue. 

Who Pays for a Home Warranty?

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 choose to buy a home. You can wrap the cost into closing costs for the first year – but there is no requirement. 

You can negotiate to have the seller pay for the first year’s cost. Many sellers will agree to show good faith in the condition of the house they are selling. But they don’t have to. You can also buy one at closing and 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 renewed it every year after that. 

Which is the Best Home Warranty Company?

There are several home warranty companies and even more options for home warranty plans. So, which one is best? 

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 an excellent option if you have all new appliances and want to avoid paying 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, and well pumps, so they may be the better option if you have any of these niche systems. 

Old Republic has an excellent price for standard coverage, but they are only available in some states. 

It’s best to research and review each company before making a choice. However, be wary of all the online articles about “best home warranty.” Some companies offer far better affiliate commissions than service to homeowners. These brands consistently rank “best” but might not be the best option for you – they’re the best for the website hoping to make money from you. 

Go to each home warranty website directly and compare the plans. Make the best decision for you, not for a website looking to make money. 

Ready to Protect Your House with a Home Warranty?

A home warranty isn’t the right fit for everyone, but it offers most homeowners exceptional peace of mind. Research the top companies and protect your most significant investment. 

It’s worth it.