When you become a homeowner, you’re ultimately on the hook for costly repairs. If something goes wrong in your home, whether it’s a leaky roof or a broken appliance, you could be looking at a big bill.
A home repair warranty could help cover some major unexpected expenses. However, there are different kinds of warranties, and some provide better service coverage than others.
Here’s what you need to know about how home repair warranties work and their pros and cons. Consider these five questions when deciding whether buying such a warranty is the right choice for you.
1. What is a home repair warranty?
Home repair warranties are either provided by builders or can be purchased from private warranty companies. They cover the repair or replacement of items in a home in the event of breakage and are separate from homeowners insurance policies that cover a home or its contents in the event of a fire or natural disaster.
It’s common for builders to provide a warranty on a newly constructed home. The Federal Housing Authority (FHA) and Department of Veterans Affairs (VA) “require builders to purchase a third-party warranty as a way to protect buyers of newly built homes with FHA or VA loans,” the Federal Trade Commission says.
- Homeowners can buy a home repair warranty themselves.
- Home sellers might offer a home repair warranty to sweeten a deal for buyers.
- Real estate agents might buy home warranties for clients as a customer service perk.
Home repair warranties can provide comprehensive or limited coverage. For example:
- For newly built homes, warranties typically might cover problems with workmanship or materials on most components of the home, such as drywall, plumbing, or major structural defects, for a period of one to 10 years.
- For existing homes, a warranty might cover everything that goes wrong except for routine wear-and-tear issues or might cover only specific appliances, heating, and cooling systems.
The more comprehensive the warranty, the more costly it will be. Warranties last for a limited time, and they often have lots of restrictions on factors such as who can make repairs or what brands of replacement materials can be used.
2. How much does a home repair warranty cost?
If you’re buying a newly built home, a builder’s warranty often is required, so the cost is baked into the purchase price of your home.
However, if you’re considering negotiating for a home warranty to be included with an existing home you’re buying or if you’re thinking of buying a warranty for your home, you’ll need to make sure it’s worth the money.
Home warranties typically cost between $300 and $800 in the first year, according to Zillow, but the price can be higher for more comprehensive coverage or longer warranties. Warranties also typically have deductibles or copays between $50 and $125, which you might be required to pay every time a repair person comes to your home to address a problem.
3. Is buying a home repair warranty worth it?
Repair costs on the major components of your home, such as your heating, ventilating, and air conditioning system or appliances, can be high. While you might want to protect yourself in case of expensive repairs, home warranties often don’t do a good job of shielding you from costs.
To decide if a home repair warranty is worth it, consider the following:
- What’s actually covered? Read the fine print to understand exactly which components of your house and items are covered by the warranty. Be aware there can be unexpected exclusions. For example, Consumer Reports warns that some home warranties cover the refrigerator but not its built-in icemaker.
- Under what circumstances are you covered? Your policy might exclude coverage under certain circumstances, such as if an oven broke while in self-clean mode.
- Do you already have coverage? For example, if appliances are newer, they might be covered by a manufacturer’s warranty, so you won’t need additional coverage by a home repair warranty.
- How are repairs made? Find out if the warranty requires you to use a particular contractor or if there are there restrictions on repairs for certain parts.
- Will damaged or broken items be repaired or replaced? Some warranties deny coverage for expensive repairs and instead reimburse you only for the depreciated value of the broken item. Then you’d end up paying out of pocket for the replacement.
- Does the warranty limit payouts? Consumer Reports found some warranties set maximum payout amounts for certain types of repairs.
If your items are covered by a manufacturer’s warranty, you don’t need to buy an additional home repair warranty. If you don’t have coverage for particular components of your house, a warranty is useful only if it doesn’t include too many limitations making it impossible to use.
4. What are the pros and cons of home repair warranties?
The biggest benefit of home repair warranties is that expensive repairs are covered if your policy is comprehensive enough and something goes wrong during the warranty period.
However, because so many policies make it hard to get repairs covered, you might waste money on a warranty that doesn’t cover what you need.
According to Consumer Reports, many complaints are made to the Better Business Bureau about home warranty companies because lots of homeowners find it difficult to get repairs covered.
If you want to reap the benefits of a home repair warranty, it’s important to shop carefully for a policy. You might even consider having a lawyer look over the warranty to make sure it will cover you if something goes wrong.
5. What can you do instead of getting a home repair warranty?
If the drawbacks of a home repair warranty turn you off, here are a few other options you can pursue to avoid costly home repairs.
- Pay for a thorough home inspection before purchasing a home: A home inspector can spot problems you might not be able to. You can negotiate to have the current owner fix any issues a home inspector finds or get the price reduced on the home so you’ll have money for repairs.
- Self-insure to fund repairs: Put the money you’d have spent on a home warranty into a savings or investment account earmarked for home repairs. Many financial experts recommend setting aside an amount equal to 1% of your home’s total value each year for maintenance and repairs. So on a $250,000 home, you’d save $2,500 per year to cover repair costs.
- Consider an affordable personal loan: If you don’t have enough money for home repairs, look for affordable home improvement loans to finance any necessary expenses.
It’s smart to make a plan to pay for repairs as a homeowner. But before you decide that buying a home repair warranty should be part of your plan, read the fine print on any service contract you’re considering to see whether the coverage is worth the price you’ll pay.
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All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
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|7.73% – 29.99%||$1,000 - $50,000|
|6.26% – 14.87%1||$5,000 - $100,000|
|6.99% – 35.97%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|4.99% – 29.99%3||$10,000 - $35,000|
|5.99% – 18.99%4||$5,000 - $50,000|
|15.49% – 34.49%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|