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The Pros and Cons of a Home Warranty

A home warranty offers several advantages; however, there are some downsides to purchasing a warranty. Follow these tips to make the right choice for you.

The Pros and Cons of a Home Warranty

Pro: Flat Rate Fixes Can Help You Save Money

If you are a new homeowner, you and your real estate agent had to rely on the home inspection team to report on the condition of the kitchen appliances, washer and dryer, and water heater, among other things. But even a highly recommended home inspector could miss issues that lead to costly repairs. If you have a home warranty, though, you can potentially save a lot of money by taking advantage of flat rate fixes.

With flat rate fixes, your service provider makes repairs or replacements for a predetermined amount of money. If your policy says you only need to pay $100 for repairs, your warranty will help when you need someone to do a job that costs several hundreds or thousands of dollars.

Con: You Could Get More Coverage Than You Need

A home warranty is essentially a service contract, but it has some features that make it similar to insurance. The most obvious similarity is that you only get your money's worth when you actually need to use your policy. 

If you never need repair services during the contract's term, you might think buying a warranty feels like a waste of money. Most warranties only cost $300 to $500 per year, though; you'll need to decide if you're willing to risk losing a little money. 

Con: The Policy Must Belong to the Homeowner 

Home warranties always belong to the homeowner, and a warranty will not protect you from loss if you rent a home. Unfortunately, renters don't usually have the financial flexibility of those who can afford to purchase homes. When you sign a lease, read the fine print regarding replacement of your appliances, as well as for the HVAC, due to normal wear and usage.

Pro: Peace of Mind 

While you may not use your home warranty, having one can bring you peace of mind. Losing $300 probably won't ruin your household budget, so you're taking a small gamble to protect yourself from serious financial loss. Many people think it's worth the risk. 

Con: Most Home Warranties Exclude Some Repairs 

Home warranties rarely cover acts of nature or God. If your home floods or a tree crashes through your roof, your warranty is unlikely to cover those repairs. Unfortunately, these are some of the costliest repairs that you could need for your house. 

Con: You Must Choose Between Certain Repair Companies 

Home warranty companies often form relationships with home repair businesses — developing contracts with repair professionals can help keep costs down for the company that owns your home warranty. This arrangement creates a situation that's similar to having health insurance (or even homeowners insurance): You have to stay within the network if you want to save the most money. 

While saving money is beneficial, some people don't like losing control over who they have performing the repairs. When you're stuck choosing from a short list of contractors, you may discover that you don't want to use any of them. You can avoid this problem by researching the warranty company's contractors ahead of time; if you don't like the list, you should reconsider buying the warranty. 

Con: Warranties May Cover Repairs Instead of Replacements 

Contractors want to spend as little time and money on your home as possible, so they may choose to repair problems instead of replacing damaged items such as air conditioners and electrical systems. Since repairs don't always last as long as replacements, you could face more expenses in the near future. 

There are many downsides to buying a home warranty, but the potential savings encourage many homeowners to purchase them. Getting a warranty is a bit of a gamble, so you will have to decide whether it makes sense for you to spend a few hundred dollars each year — the average cost of a home warranty — to avoid higher repair costs.

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