Personal Insights

Should I Purchase a Home Warranty?

It’s a great feeling to find the home you love. After all the budget planning and house hunting, you’re ready to make a commitment. But it’s a big commitment, so consider how you’ll protect it.

It’s a fact of life that home appliances and systems will eventually need to be repaired or replaced, and as the owner, those updates are your responsibility.

"Houses aren't perfect. They get old, and things get used up," says Ilyce Glink, publisher of ThinkGlink.com, a real estate and personal finance information website. "You have to plan to make changes to a house, and how you're going to cover those costs is important to think about before you buy."

A home warranty can help manage some of this uncertainty. Warranties vary, but generally, they cover the repair or replacement cost of appliances and mechanical systems. They differ from homeowners insurance, which covers loss due to events such as fire, theft, or wind damage. A typical home warranty is good for one year, though many are renewable.

Weighing the Benefits of a Home Warranty

So do you need a home warranty? It depends. If you're buying a fixer-upper, and plan to replace everything, a home warranty won’t offer much benefit, Glink says. If you're buying new construction, some builders might include a warranty with the home purchase.

But if you're buying a home with 10-year-old appliances, for example, it's only a matter of time until one of them breaks down.

As a buyer, warranties can offer some assurance that you won't have to shell out a large sum of money for a broken appliance only a few months after dealing with the financial commitments of buying a new house.

Home warranties can be valuable to sellers, too, Glink explains. They provide an inexpensive benefit that can help seal the deal with prospective buyers. "There's a peace of mind as a seller that you're basically handing some security to the buyers," she says. "From a psychological point of view, that's very smart."

Read the Fine Print of the Home Warranty

Carefully read the home warranty plan to determine what it will and won't cover (swimming pool equipment, for example, would likely require an add-on). Note whether the home warranty company will choose who performs a repair — meaning you may not get to use a vendor you know and trust. Even if something is covered, you may be required to pay a small service fee for repairs, typically under $100.

While warranties can offer peace of mind, look at the overall cost of the plan when assessing your budget. If paying monthly, Glink advises, be aware of whether your warranty is set up to automatically renew at the end of one year. "If you're on a monthly plan and you forget to cancel, you don’t want to end up paying that for a longer period of time," she explains.

You may also have the choice to pay a flat fee. "There's no one way that's better or worse," Glink says. "You have to see what's right for you."