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August 2nd, 2013

Home warranties: Yah or nay?

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Below is a post by Lindsay Meredith, first appearing on our partner site the Quizzle blog at Quizzle.com:

quakeThe flurry of activity surrounding the purchase of a home includes a lot of decisions about what you need to buy for your new digs. One of the final choices you’ll have to make before you move in will be whether or not to purchase a home warranty.

Now, I know what you’re thinking: “most warranties are a total waste of money – I’m a savvy shopper, so I know better than to get sucked into buying something like that!” But don’t dismiss home warranties so quickly – in many situations, buying a home warranty is a smart financial move.

What is a home warranty?

Home warranties are policies that cover the cost to repair or replace most of the major systems and appliances in your home. So, for example, if you have a home warranty and your air conditioning system breaks, you’ll contact your warranty company and they’ll send someone out to repair or replace it. The only cost to you would be the service call fee most home warranty companies charge, usually $50-$100.

That sounds great! Why would anyone NOT purchase a home warranty?

Well, not all home warranties are hassle-free. For one, you need to be careful to work with a reputable home warranty company; many companies say that they’ll cover the cost of certain items, but then find a reason to exclude their coverage when you actually make a service call, leaving you stuck with a bill. Be sure to research several home warranty companies extensively before committing to one, and try to get a referral from a friend or family member.

Another potential reason not to buy a home warranty is the cost: for one year of coverage, you could end up paying $400-$700. This could end up being prohibitively expensive for some people.

So what’s the bottom line on home warranties: Yah or nay?

As with all financial decisions, you need to take a hard look at your needs to figure out if a home warranty is right for you. In general, you should consider buying a home warranty if:

  • You’re purchasing a very old home
  • You’re purchasing a home with old systems and appliances
  • Your savings has been depleted by your home purchase and you don’t have a lot left over to cover the cost of a major repair
  • You’re a first-time homeowner and feel nervous about all the potential costs you could face; in other words, a home warranty could buy you peace of mind

But a home warranty might be unnecessary for you if:

  • You’re purchasing a brand new home with brand new systems and appliances (usually these have their own warranties)
  • You have a large savings account that could handle the cost of several large repairs
  • You’re very handy or have a contractor in your family; if this is the case, you might be able fix things cheaply, making the home warranty redundant

If you’re purchasing a home or just starting to get worried about the cost of repairing the major systems and appliances in your current home, consider purchasing a home warranty. It might end up saving you big bucks!

Related Links:

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One Response to “Home warranties: Yah or nay?”

  1. chris Says: August 17th, 2013 at 4:51 pm

    Home warranties are so misleading. If you dont have the money to repair things when they break you shouldnt buy a home in the firstplace. From a contractors standpoint these are the worst type of service calls to be involved in. This is not a magic solution to your repair needs and will only cause you hassle in the future. Most reputable contractors will not even work for home warranty companies which means the contractor who shows up at your home is usually a low tier contractor. Do yourself a favor and keep your money. In fact real estate agents need to be ashamed of pandering these types of programs.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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