What Does a Home Warranty Entail?

Upfront costs pile up quick when you're buying a home, and you may be tempted to skip a few things seen as superfluous. You may be wondering, however, if a home warranty is something you will need.

Home Warranties Cover a Range of Expensive Items

Replacing and repairing major appliances and systems is expensive. Home warranties take the sting out of such unexpected costs. Commonly covered items include:

• Major kitchen appliances such as refrigerators and stoves
• Air conditioning
• Heating systems
• Water heater
• Washers and dryers
• Plumbing systems
• Electrical systems
• Roof

Coverage varies from policy to policy, so be sure you understand exactly what your potential policy covers.

Home Warranties Cover What Home Insurance Does Not

A common mistake is thinking warranties and insurance overlap. They do not. While they might cover the same items, they cover very different types of damage. Insurance covers damage due to an acute, specific event such as a natural disaster or home invasion. It does not cover normal wear and tear, and that's where a warranty comes in. Warranties pay out when something simply breaks because it is old.

You have no control over how old and in what repair home appliances and systems are in your new home. A home warranty protects you from a seller having sold you products on their last legs. The last thing you want is a sizable repair bill just months after you've put down a down payment for your home.

Are Home Warranties Affordable?

Home warranties generally cost between $300 and $500, depending on your area. In the scheme of things, that's a pretty great deal for some. If even one covered appliance or system fails, it can easily cost you far more than this onetime payment. Yes, everything may end up working just fine. But do you really want to pay full price for a furnace two months after you bought the house?

Sellers Can Benefit From Home Warranties Too

If your home is up for sale, you may qualify for a home warranty as well. Why spend the money? For one, it protects you just as it does a buyer: if something breaks, the warranty will cover it. But the warranty could also be a selling point. If your home has a warranty, that's one less cost a buyer needs to worry about. Everyone wins.

Home Warranties Cover Things Overlooked by Home Inspectors

Home inspectors do a thorough job studying a home and preparing a report of what is found. However, they cannot catch everything, and some things are completely out of their purview. For example, they won't cut into walls, so they can't see the state of the electrical system except where the hardware extends into view. But a warranty may cover these things.

And if the home inspector does find a problem, that gives you leverage. Rather than demanding the sellers replace an aging furnace, you might ask them to pay for a home warranty instead. Just remember that most home warranties only last a year. Eventually, that furnace will need replacing.

While home buyers can accrue a sizable collection of costs even before they move into their new home, a home warranty is a valuable addition some of the time. It can save you both the cost and the stress of something major failing in the first year of homeownership. Before buying, consider if a home warranty is right for your situation.