Everything You Need to Know About New Home Warranties

Congratulations on your new home purchase. Moving into a new home comes with a lot of extra items on your To-Do list. There are many tasks that require attention as a new homeowner. And, getting up to speed on your new residence is at the top of the list. Many home purchases include a home warranty. The warranty is your protection against unexpected expenses for a time. But, it’s essential to understand what is covered and what could end up being another budget item.

Everything You Need to Know About New Home Warranties
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Home Warranty vs. Homeowner’s Insurance

A home warranty in an insurance plan to cover any large expenses that may pop up. However, it is vital to note the distinction between your home warranty and your homeowner’s insurance. These are two separate policies, each with its scope and purpose.

A home warranty is optional. It is predominately a warranty for appliances and the major systems of the home. The warranty works like insurance, but it would not be correct to say that it is an insurance policy. It is merely a contract that specifies which appliances and systems are under contract to be replaced or repaired should there be a need. This plan is one that will need to be paid directly by you on an annual or monthly basis. When the warranty is offered during a real estate transaction, it will likely be included in the closing statement and paid out of the closing proceeds. In this case, watch for the paperwork that you’ll get from the vendor to know when it is time to renew should you wish to continue with the policy.

When financing a home for purchase, the bank or lender will require that the house be insured. This policy covers the owner and, ultimately, the lender should anything happen to the structure. The policy includes what is known as acts of nature, fire, or water damage. 

Some policies may also have other items inside the home if they were not already in the policy, such as jewelry, a built-in microwave, or expensive electronics. This insurance will cover any necessary repairs or replacement costs. This expense is typically incorporated into your monthly mortgage payment and will often be paid by the lender out of an escrow account.

What’s Covered?

As mentioned, the home and its structure fall under the umbrella of the homeowner’s insurance policy. But should there be a system failure or a sudden appliance breakage, those will fall under the home warranty. That is, as long as it was a system or appliance listed on the contract. If you move in in the fall and the heat goes out in the first of winter, you are responsible for those expenses from the moment you leave the closing table. Any repairs or replacement of one of the home’s systems could end up with a cost into the thousands.

Keep in mind that these are standard inclusions. Still, your specific contract may not include these, so you both must know in advance of entering into an agreement and verify the coverage on the policy once it’s given to know exactly which problems you can get support for from your home warranty provider.

The typical systems included in a standard home warranty are electrical, heating, interior plumbing, water heater, and ductwork. It is not uncommon to have a problem pop up in one of these areas within the first year of living in a home. A home inspection may not have given any indication of a problem due to seasonal usage or good ole’ Murphy’s Law. But the home warranty allows for peace of mind to know that the expense will be covered if it happens.

Appliances are another area where a break or repair could end up costing a significant amount. It might seem odd to note that the air conditioning is often considered an appliance and is not always included, so be sure to add it to your policy if you want the coverage. Other such appliances often included are the dishwasher, garbage disposal, oven/range, stovetop, and refrigerator (an ice maker is often excluded). Optional appliances might consist of pool or spa equipment.

Other Considerations

Some home warranty vendors offer specific contract plans available in an a la carte arrangement. You may want to cover the HVAC equipment entirely. Or perhaps you are willing to replace some appliances out of pocket but want protection against others. The manufacturer’s warranty could cover some appliances, so the expense of the additional warranty would be unnecessary.

Some potential expenses may be specific to the area where the home is located, and therefore it could prove beneficial to have a policy prepared to cover any problems. Some of the uniquely critical components may include a sump pump or well and septic.

Many companies will offer very detailed coverage, but it’s a matter of calculating the coverage cost compared to the estimated out-of-pocket expense. Take, for example, ceiling fans. The warranty buyer can expressly have these incorporated into the home warranty if the forecasted replacement cost is more than the cost of the warranty.

Know the Limits

As with all agreements, the terms are defined by their allowances as well as their limits. Most warranties will have a limit on how much they will ultimately provide for repairs or replacements. And, indeed, if the home inspection discovered a faulty system or appliance, it will likely not be included in the plan since it was a previously known cost that should be addressed before the purchase or assumed by the buyer at their own expense.

Home warranties offer a homeowner peace of mind in knowing that, if something should break in the home, especially a newly-purchased one, there will be a contract for supporting the expense. Home warranties can be a great selling point for a home on the market to offer the buyer the promise of everything working as it should be or provide coverage for a certain amount of time. To be sure, after all the expenses involved in buying a house and keeping one maintained, it’s a great relief to know there’ll be some support if the furnace should happen to stop working.