Homebuying 101: What is a Home Warranty

For first-time homebuyers—or anyone else who doesn’t want to deal with maintenance issues—a home warranty might be worth considering.

You know how Best Buy and other electronics retailers often ask if you want to buy an extended warranty for a computer or other gadget? A home warranty is kind of the same concept.

For a fee of about $200 to $500 a year, a home warranty covers the costs of repairing or replacing a malfunctioning system in the home. The system could be a dishwasher, clothes dryer, oven, water heater, plumbing, heating, A/C, or microwave.

Let’s say your water heater breaks, and you’ve got a home warranty that covers it. Great. You don’t have to call around to get estimates and pay out of pocket to get it fixed. Instead, just call your home warranty provider. The warranty company calls a hot water heater repair company it has an arrangement with. The hot water heater company calls you to set up an appointment and then either fixes the problem, if it’s possible, or installs a replacement hot water heater. The costs are covered by your home warranty, though you might also pay a small trade service fee (usually under $100).

Who should get a home warranty?

Home warranties aren’t for everyone, of course. If you’re moving into a recently remodeled or built property, chances are you don’t need one. But if you’re buying (or already living in) a home that’s 15-20 years old or more, and your home has old appliances and systems, a home warranty might be worth the money. And as mentioned, it’s also worth considering for first-time homebuyers or anyone else who doesn’t want the hassle of figuring out whom to call when something breaks.

American Home Shield is probably the best-known home warranty provider. Others include Fidelity National Home Warranty, First American, and Old Republic. Your Realtor can give you referrals, and you can read reviews of home warranty companies on the Home Warranty Reviews site.

If you shop for a home warranty, be sure to ask each company exactly what’s covered. If something isn’t covered (such as the plumbing system), ask if you can add-on coverage and if so, how much?

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