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Published: February 28, 2020

Is a home warranty a good investment?

If you're new to the home-owning game, some terms can be confusing. Real estate agents and loan officers explain all the elements that need to be put into place after you sign on the dotted line, but they often leave out the ins and outs of a home warranty.

Whether you buy a brand new house or one with experience, it's a daunting proposition to suddenly become a homeowner. So what, you may ask, is the purpose of a home warranty? Does it sound like a sucker's bet, kind of like a trip to Best Buy where they ask if you want extra protection for that big screen TV you just purchased? Not exactly.

A home warranty insures many parts of your home — not the home itself, but the systems and appliances within it. Like a service contract, it covers the wear and tear of things in a home. If you purchased a new house, it's not a topic that comes up right away, since most things in your house already carry a warranty. But if you take note of how long those warranties lasted, you might consider marking dates on your calendar for when they expire. That's when a supplemental home warranty can kick in.

Because the cost of replacing or fixing a core system such as heating or A/C is so high, a home warranty could limit your losses. "For a monthly fee, home warranties usually cover you for such breakdowns," says a Realest guest blogger.

So what exactly is the difference between a home warranty and homeowner's insurance? "Home insurance covers the home itself. Generally, it covers four aspects of things that could go wrong. Fire, theft, personal injury, and bad weather. These things tend to be high-cost problems that derive from disasters and unlikely (but possible) events," says Realest.

It goes on to say that homeowners' insurance is arguably more important than warranty insurance, but are not even close to being mutually exclusive. There is no overlap, especially if you live in a place that is prone to hurricanes, flooding, or tornadoes. Disasters wreak havoc even here in Colorado Springs and become a huge threat to your investment. So much so, that lenders require you to carry homeowners' insurance to protect their interests.

In contrast, home warranties are not designed to protect you from disasters. They're a form of insurance that is there for the smaller stuff, like an oven that stops working or a refrigerator that stops keeping your food cold. While a homeowners' insurance policy is almost always mandatory (and necessary), a warranty is not. To determine if it's worth it to buy one, factor in how old your appliances are, how prone to breakdowns they are, and how much it would cost to replace or fix them. There's likely a deductible each time you make a claim, so it's best to use your warranty wisely just as it is with your insurance policy.

"We get insurance and warranties to cover ourselves in the worst-case scenarios, " says Realest. "If you're anything like the average American, you have under $5,000 in savings. In the event of a plumbing issue, an air conditioning unit breaking down, and a leak in the swimming pool, you could be looking at a $10,000 bill in the space of a few weeks. This is an extreme scenario, but there are many other more benign scenarios that cause huge problems for Americans."

A home warranty can help cover you when those unexpected every day issues happen inside your home. Feel free to reach out to your loan officer here at Handcrafted Home Mortgage to discuss if a home warranty makes sense for you. We can help you find the best situation for you in Colorado Springs.

Source: Realest, TBWS

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