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A home warranty plan can end up saving you a lot of money if done in the right circumstances. Here’s how to buy a home warranty plan.
How to Buy a Home Warranty Plan: Do You Really Need One?
If I achieve that goal, I want to minimize my liability of replacing equipment in my home. A home warranty plan could help do that.
In addition, I’m adding a income property to my portfolio and will evaluate a home warranty to minimize any large cash outlays/capital expenditures.
I’d love to buy properties in the 8-10% cap rate. Here’s how to calculate a cap rate for your income property.
I manage all of my cash flow streams and net worth with the free personal finance tool of Personal Capital. Give it a try, it will help you build wealth faster and more efficiently.
At this point, you’ve probably been through your home appraisal checklist, but need to understand if you need a home warranty. Having a valuable asset or your HVAC system break down or wear out is one of the most depressing scenarios.
It’s worse than having to get your keys made. But with a home warranty plan, it doesn’t have to be the case. In this article, we will explore more about how to buy a home warranty as well as explore the benefits and drawbacks of getting a home warranty plan.
A home warranty plan gives you peace of mind and can save you thousands of dollars. It helps cover the costs of repairing your home appliances and of maintaining your electrical, heating, cooling and plumbing systems. Appliances are just one risk as part of real estate. Here are several other real estate risks to consider.
Before we look at how to buy a home warranty plan, let’s look at what it entails.
So, what is a home warranty plan?
A home warranty plan which is also referred to home protection plan is whereby a homeowner or a seller enters into a contract with a home warranty provider to repair or replace specifically covered home appliances and system when they wear out, break down or are in need of maintenance. Finding the best home warranty plan for your assets is imperative.
The plan comes in handy when valuable items in your home stop working because of wear and tear or aging and you require thousands of dollars to repair or replace them. There are a very large variety of plans out there to consider, so do your homework to ensure you make the right decision.
Who buys a home warranty plan?
You are probably wondering who buys the home warranty plan. A home warranty plan can either be acquired by a homeowner, a home seller or a real-estate expert. The plan can either be paid for by either the seller or the buyer. The one who pays for the plan depends on the local customs of where you are.
In most cases, a home seller can acquire the home warranty before closing a home sale deal. It helps add value to the property, appeal to the buyer and give them some peace of mind of not having to incur any extra costs after they purchase the house.
The home warranty plan by the seller mostly cover the home for the duration the plan states and usually should last at least one year after the sale of the house. A homeowner, on the other hand, acquires a home warranty plan at any time they so wish and it can either be shortly after they have bought a home or even several years later.
Home warranty is not a home insurance policy
A home warranty plan should not be confused with a home insurance policy. There is a difference between a home warranty plan and a home insurance policy.
A home insurance policy mainly covers any accidental loss or damage to your belongings or home due to fire, theft, storms and any other natural calamity.
A home warranty plan, on the other hand, is a service contract that provides repair or replacement of home appliances and component systems damaged due to standard wear or tear as well as aging.
That is the primary difference between the two although there are other differences. Now let’s look at how to buy a home warranty plan.
How to Buy a Home Warranty Plan: 5 Tips to Consider
If you want to buy a home warranty plan, you need to consider a few tips and options. Here is the process of buying a home warranty plan:
Decide whether you need it
Why do you need a home warranty plan? It is the first question you must answer before you buy a home warranty plan. First of all, it is preferable to buy a home warranty for a house that is on sale and is relatively new.
So, if your house is not relatively new, you probably don’t need to buy the home warranty plan. However, you can still talk with a real estate agent to further advise you on the matter.
Another thing that you must consider is whether the manufacturers or the retailer warranties for most of your home appliances are still applicable.
If they are not, then you are ready to shop for a homeowners warranty plan. It is ideal to buy a home warranty plan for your appliances if the manufacturers and retailers covers have expired.
Determine what needs to be covered
The next thing that you must decide is what must be covered and the level of coverage. It includes the home square footage and the items that the cover will cater to.
It is crucial to be aware of it beforehand since they also help you decide the right plan as well as how much it would cost. The plan cost depends on the items that are being covered. Ask your realtor who needs coverage. A realtor might tell you something, so you need to ask the right questions.
Estimate the home warranty cost
The value of a home warranty plan depends on the things that you want to be included in the plan. The cheapest option involves a home warranty for one particular appliance.
You can acquire a plan for a single appliance if it is old which can help you offset the cost of replacing it. The item must be pass inspection by a home warranty agent for it to qualify. It costs around $100 per year.
Another option is to purchase a home warranty plan for all your expensive home appliances. It involves bundling up together all the home appliances in a single plan, and thus you pay one fee to cover them all. It costs around $200-$300 per year.
A home warranty option that cost around $800 per year is the most expensive one. It involves taking a single package for all your appliances plus other home HVAC systems including electrical, plumbing, heating, and cooling systems. It gives you an option to choose the systems that you want to be included in the plan.
Choose a plan that gives you a “repair or replace” policy meaning if they cannot repair your item and then they will replace it. Avoid the plan that has an “obsolete” policy which means that the company does not have to fix a system or an appliance if the parts are difficult to find.
Factor in the amount that you will have to pay for calling the service provider or to for making the maintenance bookings. It is a deductible that ranges from $75 to $125, and it depends on the plan.
Choose the right company
The next step on how to buy a home warranty plan involves choosing a warranty company. There numerous companies that offer home warranty plans. One rule of the thumb is to avoid selecting the companies that do not cover your locality.
You can ask a real estate agent in your area to help you understand how to choose the right home warranty plan for you based on your home.
You can also search online for the best company near you. One way to search for a reputable warranty plan is to read the customer reviews and feedback.
Call the company or check online for more information on their pricing plans and what each package covers. The maximum amount that many companies offer to pay for the repair and replacement differs with each company.
The cost can range from $1,000 – $1,500 for a single appliance and a maximum of $7,500 for all home appliances. Find out more about it from a customer representative as well from other company resources.
Choose the one that suits your needs best. Remember the aim is not to end up paying any repair or replacement costs from your pocket.
Read the fine print to understand the terms and conditions of the contract. It lets you know what is being covered in the plan. Sometimes you may find that a plan covers your refrigerator but excludes the ice machine in your fridge.
So it’s important to check through before you sign on the dotted line. You should also check how long you are covered.
Assess the status of the home systems and appliances being covered beforehand
Home warranty companies perform an inspection before offering a home warranty plan. It helps to find out the condition of the system and the appliances. If it’s too worn out, not working correctly or are already broken, they may exclude it from the plan.
The homeowner should also submit maintenance records or prove otherwise that the appliances and systems have been well maintained.
Other conditions that may make the warranty service provider fail to do repair or replacements include pre-existing condition revealed in a home inspection, code violations, unusual wear, and tear and improper installation.
The homeowner must agree with the warranty company about everything involved and usually have no say on the contractor or repair brands that the warranty company uses when called upon. The home warranty is unlikely to cover things like roof replacements.
Conclusion on Buying a Home Warranty Plan
A home warranty can be extremely helpful in certain scenarios. I wouldn’t advise using one in every situation. If you can negotiate it into your home purchase for no additional detriment to you, then go for it.
A home warranty is added protection while you settle into your home.
I believe that now you know how to buy a home warranty plan and everything that it entails. You can also seek further information from your real estate agent, and they will recommend the best home warranty for your needs.
If none of this suits you, you can opt for passive investing like investing in hotels.
Do you know how to buy a home warranty plan? Please let us know in the comments below. We’d love to hear from you.
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