What is a home warranty and should I have one?

Ralph Estep Jr.:
00:00

Do you ever worry about that expensive appliance breaking down or the AC unit going out right after you buy a house? It happened to me. What if the roof starts leaking or the plumbing springs a leak? Home repairs and replacements can cost thousands of dollars. So the question for today is a home warranty something you should consider when purchasing a new home, or maybe even for your existing home? Well, stay tuned to find out. That's what we're going to be talking about on today's show.

Ralph Estep Jr.:
00:29

Welcome back, faithful listeners to another Motivational Monday episode of the Ask Ralph show where we explore mastering your finances from a Christian perspective. I'm your host, Ralph, and I am so glad you chose to join me today. Thank you for giving me a part of your day. Let's start by taking a moment to reflect on yesterday's show about becoming debt-free through Godly wisdom and discipline.

Ralph Estep Jr.:
00:51

It was encouraging to hear from listeners who made huge strides in getting out of debt by sticking to a budget, cutting their unnecessary expenses, and trusting God to provide. Remember this, as I said yesterday, the borrower is a slave to the lender. So seek that financial freedom through financial stewardship.

Ralph Estep Jr.:
01:11

Okay! Well, onto today's topic. What is a home warranty? And should you purchase one when buying a new home or even for your existing home for that matter? This is an important question for all homeowners and especially those who are new homeowners. Those first years come with a lot of unexpected costs and repairs.

Ralph Estep Jr.:
01:29

Today, I'll walk through the pros and the cons of these home warranty so you can make the best decision for your situation. But first, here's a preview of tomorrow's show. We're going to be talking about no credit check loans and other online lending options. Listen, we all face times of financial hardship, but quick and easy loans often lead to more problems down the road. So tune in tomorrow as we explore God-honoring solutions.

Ralph Estep Jr.:
01:57

Let's get started with some biblical wisdom today from Philippians 4:19, and it says this, "And my God will meet all your needs according to the riches of his glory in Christ. Jesus." As you face decisions about your finances, home repairs, and more, remember that God promises to provide for your needs. But you have to seek him first. All right. Well, let's dive into today's topic on home warranties.

Ralph Estep Jr.:
02:26

Let's get this going by answering a very simple question. And that's "Ralph, what is a home warranty?" Well, home warranty is a service contract that covers repairs and replacements for your major home systems and those appliances to break down due to normal wear and tear. When something covered breaks, you pay a service fee and a home warranty company arranges for a contractor to come and repair or replace the entire system.

Ralph Estep Jr.:
02:51

Home warranties are typically sold by real estate agents when you purchase a home. You'll see those often listed as a thing that you can buy, but you can also buy one independently after moving in. Coverage lasts usually 12 months and generally renews annually.

Ralph Estep Jr.:
03:05

So the next logical question is "Ralph, what does a home warranty cover?" Glad you asked. Home warranty plans vary, but they generally cover your major systems and appliances. Those would be things like heating and air conditioning systems, the electrical system, the plumbing system, your water heater, maybe your oven, your stove, or your cooktop, your refrigerator, that washer and dryer, that dishwasher, that garbage disposal, and some even cover ceiling fans.

Ralph Estep Jr.:
03:32

The coverage is for repair and replacement if normal wear and tear causes breakdown. Now cosmetic defects or damage from misuse is not generally covered. This is something you have to understand. It has to be normal wear and tear and listen. These warranty companies are experts on spotting normal wear and tear versus other reasons why something might've failed.

Ralph Estep Jr.:
03:53

So let's talk about what home warranties do not cover. They generally don't cover what's called secondary systems. That'd be things like pest control, security systems, your pool or spa, and generally they don't cover septic tanks. The specific inclusions and exclusions will be spelled out in your policy paperwork, and you need to read it carefully.

Ralph Estep Jr.:
04:13

You've got to really understand what you're buying and if it truly covers those items you're expecting it to cover. Unfortunately, I've heard many stories from clients and others about the battles they've had with these warranty companies not be willing to honor their commitment or wasn't included in that warranty.

Ralph Estep Jr.:
04:30

So the next question is "Ralph, what are the pros of a home warranty?" Okay, so let's explore some of the potential benefits of purchasing one of these home warranties. And the first is this, it's peace of mind. It's comforting knowing you won't face huge, unexpected repair bills for broken systems, appliances, and other systems. The warranty kicks in to handle it.

Ralph Estep Jr.:
04:50

The second pro is convenience. You don't have to find repair technicians. The warranty company has a network of contractors to dispatch just when you need them. Now here's a little pro tip. Just remember, that oftentimes your systems will fail during those contractors peak seasons. Like right now in Delaware, it was a hundred degrees yesterday, so your AC might die.

Ralph Estep Jr.:
05:10

So be patient. You have to wait for a contractor to get in touch with you and trust me. I have many of these contractors who are clients and they want to be there to meet your needs. You just have to have some patience with them. And if you find they're not getting back to you, I will go ahead and call the warranty company and ask for another contractor.

Ralph Estep Jr.:
05:27

The third pro is budget protection. You know, I love budgets. Paying a deductible of $50 to $100 per repair is certainly more affordable than paying the whole cost, which could be thousands of dollars. If you heard my episode from the last few weeks about the unexpected cost of home ownership, you would know that I learned this the hard way when my AC crashed just after I bought my first townhome. What a disaster that was. If you missed that episode, I will recommend you check it out. You can see our entire catalog of over 400 episodes right there at askralphpodcast.com.

Ralph Estep Jr.:
06:00

Let's move on to pro number four and that's increased home value. Homes with warranties may sell faster and even for more money. It signals quality to buyers. Many sellers often choose to offer these home warranties as part of the sales process. And finally, pro number five, coverage for older systems. If you buy an older home, a warranty hedges risk of aging systems breaking. I will just say, to read the fine print. Many warranties provide prorated or limited coverage for older systems.

Ralph Estep Jr.:
06:31

So let’s talk about that for a second. Let's say your water heater fails. If the normal useful life of a water heater is 10 years and yours fails in year nine, the warranty company may limit their payout. So this is something you need to understand the front end. You got to see if that coverage is prorated or complete replacement value.

Ralph Estep Jr.:
06:49

That's a question you certainly want to ask when buying a home warranty. Now, that's a tip that comes from experience. Unfortunately, not a good experience from one of my listeners who learned this the hard way. When their hot water heater died 12 years into its life. I guess they got their money's worth, but they were very upset when a warranty company denied their claim.

Ralph Estep Jr.:
07:08

Let's move on to a frank discussion of what the cons are of a home warranty. As with any purchase, there are some potential drawbacks to consider. The biggest one with these home warranties in my view is paperwork and approvals. The process of filing claims and getting approvals can be a hassle. Could be issues of contractor quality. You're stuck with whoever the warranty company dispatches and quality varies.

Ralph Estep Jr.:
07:32

And I have to say, oftentimes, companies that take these warranties are often startups looking for work. So that might result in the less favorable results, or they may be these huge companies with major levels of bureaucracy and it might take longer to get your repair addressed. Another con is exclusions. As we talked about, many secondary systems and certain repairs are excluded, leaving you to pay out of pocket anyway.

Ralph Estep Jr.:
07:56

And another con is this, and that's the cost. The warranty premium, the service fee for repair, and annual renewal costs add up. There might be another kind of limited coverage, caps on amount paid out per repair, or a year can leave you covering large costs. So you've got to weigh both the pros and the cons carefully when deciding about purchasing a warranty.

Ralph Estep Jr.:
08:17

So you might ask, "Ralph, how much does a home warranty cost?" That's another great question. Well, the truth is this. The cost of home warranty plans can vary dramatically. It's probably not the answer you were looking for, but it's the truth. The national average is $300 to $600 per year, but there are a lot of factors that influence that price. It could be your location, might be the size, and age of your home.

Ralph Estep Jr.:
08:39

There are usually what they call coverage tiers basic versus enhance. Yes, there are often various service levels which you can select. There are also features included, like some might cover electronics or roof leaks or et cetera. You can also look at shopping for service fee for repair and annual renewal pricing. So here's a pro tip. Be sure to get several quotes and remember, the lowest price may also mean the most exclusions. As I always say, you get what you pay for.

Ralph Estep Jr.:
09:09

So the next question is this. "When should you purchase a home warranty?" Okay. So it's a simple question. "When does it make the most sense to purchase a home warranty, Ralph?" "What are some good times to consider it?" If you're buying an older home, it's a way to hedge your risk of aging systems breaking. Maybe you're a first-time home buyer and you don't have that repair savings built up.

Ralph Estep Jr.:
09:27

Remember, as I always say, build up that emergency fund. Maybe you're purchasing a foreclosed home and you'd not know about the condition and history of the property. It's another good time to buy one. Maybe you're a busy family, and the convenience of repairs being handled just isn't going to fit into your time.

Ralph Estep Jr.:
09:44

Maybe you have a tight budget. It limits those large, unexpected costs, and also resale value. It'll appeal to potential home buyers in the end. A home warranty probably makes less sense for small repairs you can handle yourself or for brand new construction. Because those things are usually covered by builder warranties.

Ralph Estep Jr.:
10:03

So here is the million-dollar question and that's "Ralph, what should you look for in home warranty company?" If you decide a home warranty is right for you, do your homework and pick a good provider. So here's some pro tips for that. Check their reviews and rating quality online for quality, service, and value. You need to make sure they've been in business for many years. You want to work with an established company.

Ralph Estep Jr.:
10:27

Look for companies that have their own network of technicians instead of subcontractors, find out response time and repair timeline commitments, understand the claims process and any limitations or caps, and ask what systems and appliances are covered or excluded and compare those annual costs with competitors. Doing your due diligence upfront prevents headaches down the road, and we all need to get out of these headache situations.

Ralph Estep Jr.:
10:52

So be sure to check out our website at askralphpodcast.com. While you're there, join our email list to receive my free book. This is it. "Mastering Your Finances" And along with that, you'll get a notification of each day when we post a new episode. If you enjoy the show, please rate and share with others. Those people will also benefit from practical advice from a Christian perspective.

Ralph Estep Jr.:
11:12

So let's recap what we've covered today. Home warranties cover repairs or breakdowns in major systems and appliances. They provide peace of mind but do come with some drawbacks. As I talked about, the annual average cost is between $300 and $600, depending upon what tier you pick. They're great for older homes first time buyers, and those on a tight budget. But as I always say, you have got to research the providers carefully and read the fine print.

Ralph Estep Jr.:
11:38

Remember this, Philippians 4:19 says, "and my God will meet all your needs according to the riches of his glory in Christ Jesus." As you make decisions about your home and finances, seek the Lord. He will guide you each and every step of the way. Well, that's all the time we have for today. Thanks for tuning into the Ask Ralph Show. I truly appreciate you joining me. Let's continue learning how to honor God through our finances. Stay financially savvy, and God bless you today.