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How to Determine if You Need to Buy a Home Warranty
Unlike home insurance policies, home warranties are service contracts. Similar to the service contracts you buy when you purchase a new computer or TV, home warranties cover repairs, and if necessary, will replace an item. Determine if you need a home warranty by considering the resources you have, i.e., time and money, and by investigating the age of your house and its appliances.
Considering Your Resources
Learn what coverage you already have.When determining if you need a home warranty, always consider the coverage that you already have. For example, if you bought a newly-built home, home systems and appliances usually have 1-year warranties. Additionally, most states require that builders warranty the house’s structural elements for up to 10 years. You can also use a credit card that extends a product’s warranty for up to a year when buying new appliances and furnishings.
- Find out how old your home is to determine if its structural elements are still covered. Here are some ways that will help you figure out the age of your house: examine the visual character and architectural style of the house, check the title, ask your neighbors about the neighborhood, visit the tax assessor at your local City Hall, and/or visit the county register of deeds at the Registrar’s office.
- If you’re buying a home that had a previous warranty, make sure the warranty is transferrable to you as the new owner.
Negotiate a home warranty into the selling contract.If you’re purchasing a home, you can often negotiate a home warranty, paid for by the seller, into the contract. Negotiating a home warranty into the sale is the best possible solution, as it can save you money on costly repairs down the road without having to pay for the warranty yourself. Speak to your real estate agent or lawyer for more information.
Read the fine print to see if it is worth the cost.When buying a home warranty, always read the fine print to see exactly what the warranty covers. Warranties usually cover basic things like the inside electrical system, appliances such as your refrigerator, heating and air conditioning, and interior plumbing. More importantly, determinehowthe warranty will cover your appliances; there may be exclusions and limitations.For example, ice makers in your fridge, which usually break down, are not covered.
- Many home warranties do not provide coverage if your appliances have pre-existing issues, if you did not maintain the appliance, if it was installed incorrectly, or if the appliance has wear and tear.
- Do not assume that your warranty will replace your appliance; they usually opt to repair it instead. And, do not assume that the warranty will cover the entire cost.
Find out if you can cancel a new warranty within 30 days.When buying a policy, find out if you can cancel it within 30 days. Many contracts provide a 30-day free trial. This allows you to get to know the home and cancel within 30 days for a full refund, if you determine you do not need it.
Start an emergency fund instead.Many homeowners who do not have an emergency fund (i.e., money set aside in case an appliance or some part of the structure breaks down in the home) opt for a home warranty. This is usually the case with new homeowners, who have just depleted their savings to buy a house. However, if you have the money to set aside for an emergency fund, experts recommend that you start an emergency fund instead of buying a home warranty.
- The size of your emergency fund will depend on your income. However, as a general rule of thumb, your goal is to have an emergency fund that will cover 4 to 7 months’ worth of expenses. Establish a monthly savings goal, and have money automatically transferred to your savings account each month.
- In the beginning, your savings goal can be small, but try to increase it over time. Do not use your emergency fund to cover other expenses, like entertainment and personal expenses. To avoid this, make access to the savings account relatively difficult.
Investigating Your Home and Appliances
Consider a home warranty if your house is older.If your house is older and you are unsure how old your appliances are, you should consider buying a home warranty. Costly appliances that can break down in older homes are refrigerators, ovens, washers and dryers, dishwashers, air conditioners, and water heaters. If you do not have the money to cover the expenses of replacing or repairing appliances, then consider getting a home warranty.
Determine if the covered appliances have pre-existing issues.Before buying a home, ensure that the appliances are working at the time of sale. Warranties usually do not provide coverage for appliances that have pre-existing issues. Try to determine if your appliances have pre-existing issues, such as appliances that have never worked, appliances identified as faulty by an inspector or in previous repair calls, and items that were not turned on or plugged in at the time of inspection during the listing period.
- You can also compare the age of each covered appliance to its average lifespan. If the appliance is older than its average lifespan, then it's highly likely that it will break down sooner rather than later.
- Use the chart from the National Association of Certified Home Inspectors to determine the average lifespan of your appliances. Then, compare the actual age of the appliance to its average lifespan.
- If you have more than one major appliance that is older than its average lifespan, and you do not have an emergency fund to cover the costs, then consider buying a home warranty.
Weigh the costs of repairs with the benefits of a home warranty.For example, if you buy a 0 policy that you use twice in a year, once for a stopped up sink and again to replace a heating element in an oven, then your warranty costs more than your repairs. If you have a 0 policy that replaces a ,500 air conditioning system, then your home warranty will have saved you money.
- Consider the costs to replace your appliances. For example, a boiler can cost around ,000 to replace. Repairs on refrigerators can be up to ,000 if a motor needs replacing. And, the cost to repair a surface-heating oven can be up to ,200.
- Consider a home warranty if you have expensive taste in appliances. If you have expensive taste in appliances, repairs can be very costly. Consider getting a warranty if this is you.
- Also remember that home warranty firms charge a non-refundable service fee when a contractor comes out to see you. The service fee can range from to 0.
Thinking About Your Schedule
Discern if you have the time and skills for DIY repairs.If you do not have the time or skills to make DIY repairs, home warranties may be a good option. For example, if you have a busy work schedule, children to take care of, or are not handy yourself, then consider a home warranty.
Consider whether you have time to find a trusted contractor.Home warranties usually provide you with a contractor. Therefore, you do not need to take time out of your day to research and contact reputable, independent contractors. When hiring an independent contractor, there is always a level of uncertainty. You can eliminate this by having a home warranty, which will provide you with a trusted contractor.
- On the other hand, you do not have a choice about which contractor your home warranty firm will send out to your home when you have an issue.Consider this when deciding to buy a home warranty.
Determine if you have time to research reputable home warranty firms.On the other hand, it also takes time to find a reputable home warranty company. Home warranty companies can be dishonest companies attempting to scam you. Therefore, taking the time to research a reputable company can be time consuming, as well. You might be better off starting an emergency fund and asking your friends or family members if they know a trusted independent contractor.
- Find out if a home warranty firm is a reputable company through the Better Business Bureau, your state attorney general’s office, or your state insurance commissioner.
Can a lawyer advise a buyer how to purchase a home warranty when closing on a home?
- Owning a house means that repair and maintenance issues will come up. Even with home warranties, homeowners should budget for home maintenance. Experts recommend that homeowners set aside 1% of the house's value each year for repairs.
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