You’re not alone – it ain’t always easy being a homeowner in 2020.
As if the purchase price of a home wasn't bad enough, home maintenance costs can make matters worse.
When something goes out on your house, such as an AC unit or a washing machine, sometimes your paycheck isn’t able to keep up. The pre-owned house, which you bought 5-10 years ago, is starting to show its age.
Perhaps you already shell out tons of cash on things like daycare, car payments, and property taxes. Your airtight finances can’t take a significant shock, like the AC unit going out.
But truthfully, neither can most Americans – 78% of us live paycheck to paycheck. 40% can’t cover a $400 emergency.
What options do you have when the roof needs repairs? It might be time to consider a home warranty, because believe it or not you might just have the same money long-term!
What the home warranty!?
I once heard a top 100 financial planner say this about homeownership:
If you plan on purchasing a home, plan on saving 2-3% of your purchase price per year for home maintenance.
While at first, I was confused, I eventually understood what he was saying. If you buy a $250,000 home, plan on at least setting aside $5,000 per year for home maintenance.
$5,000 just for maintenance costs seemed a bit high, but what else was I supposed to do?
Homeowner’s insurance doesn’t cover wear-and-tear claims, despite the hardship inflicted by the midwinter failure of a $3,000 furnace. Not everyone has $5,000 sitting around to replace the AC unit on those hot days.
There is hope, though, as home warranty providers cover what insurers won’t touch!
Are home warranties still a viable solution? Over the next two minutes, I aim to explain why they are!
(In this post, I’ll show you how they can save you THOUSANDS per year on repair costs)
What are home warranties?
Despite having been around since 1971, home warranties are mostly an unknown quantity.
So, what the heck are they? Effectively, a home warranty picks up loose ends left behind by insurance companies by paying for home repair/replacement costs.
As mentioned in the intro, home insurers don’t cover issues related to “wear and tear.” They classify these events as “foreseeable.” You can’t predict a tree falling on your house, but you can foresee the failure of your A/C unit. It’s only a matter of when.
However, this doesn’t change the fact that most home systems and appliances are practically essential to modern life. If even one fails, your quality of life plummets. If your A/C dies on a hot summer’s night, good luck falling asleep.
If your range breaks, how will you cook dinner? And so it goes.
So, let’s say you sign up for a home warranty – how exactly would it work? Like a home insurance policy, you pay a premium every month. When a covered appliance/system breaks, you give your home warranty firm a call.
After sorting out the details, they send the appropriate repair person to your home. At this point, you’ll pay a nominal service fee (aka a deductible). Instead of shelling out hundreds or THOUSANDS for repairs, you’ll pay no more than $60-$125 out-of-pocket.
That’s the appeal of a home warranty, it's a nontraditional way to help you save money.
Why haven’t I heard of them before?
The value proposition of a home warranty is a compelling one. So then, the million-dollar question becomes: Why haven’t I heard of them before? To answer this question, we’ll need to take a deep dive into the history of housing in our country.
Our parents lived in houses built in the 1950s – or earlier. Often, these homes were made by hand, rather than by the systemic procedures used by builders today. Because of this, they’ve held up well over the decades. There’s a reason American Home Shield was one of the few home warranty firms around in the late 20th century. Few homes were falling apart en masse, limiting market demand for their services.
Then, the Boomers arrived. In the 1970s and 1980s, they started buying homes. This development triggered an economic boom, which led to labor shortages in the trades. As a result, houses built during this time were slapped together quickly. 30+ years later, their Gen X and Millennial owners are dealing with leaky roofs, malfunctioning vents, and other issues.
In 2015, Rodney Martin of America’s Preferred Home Warranty admitted only 3-4% of American households had a home warranty. However, we’re confident this number will only rise in the future, as cash-strapped homeowners scramble to tame repair costs.
How much money can a home warranty REALLY save me?
So, you’re skeptical about this home warranty thing. That’s a healthy attitude to have – there is no shortage of scams out there these days. However, if your residence has been standing for 20 years or longer, the math clearly shows the benefits of having a home warranty.
According to Statista, the average American spends more than $2,000 maintaining their home every year. And, that’s only an average – sometimes, you’ll spend more (especially if you have to replace your furnace).
Compare that to the cost of a home warranty. HomeAdvisor reports that the average home warranty costs $878 per year. Let’s say you have that policy, with an $80 deductible. If you make three service calls per year, you’ll spend a little over $1,100 per year. Spend a few hundred on preventative maintenance, and you’ll shell out about $1,400 annually.
In a quiet year, you’ll break even.
But during average and expensive years, you’ll come out well ahead. For example, what if you have a year where your roof and gutters have issues? One of the most common roofing questions is always regarding replacement and how to get a new roof financed/paid for. That’s the advantage that many homeowners are waking up to. This lets you save money for retirement or even consider paying off your mortgage early.
Beware of shady home warranty outfits
As you’ve rightly suspected, there are a lot of dishonest outfits out there. I am not going to lie – just like big-box warranties – the home warranty industry has more than its share of fly-by-night operators.
These players promise everything the industry leaders do but don’t deliver when you need them most.
They don’t vet their contractors properly, leading to shoddy repair jobs. They skimp on customer service, leading to availability gaps. So, your sink’s hot water faucet blew up at three in the morning? Too bad your firm doesn’t answer the phone until eight.
So, how do you find reputable home warranty firms while sidestepping the con artists? Start by reading online reviews intelligently. When companies screw up these days, you’ll learn all about it on sites like Yelp, Google Reviews, and Trustpilot.
However, don’t get caught up on one-star reviews. While it’s important to skim them to spot trends, people also complain about the dumbest things. Often, they’ll rant about being refused coverage on things their policy didn’t cover (note: always read the fine print.)
To get the clearest picture about a firm, filter for four, three, and two-star entries. People who leave these reviews provide the most balanced feedback. No fawning praise or unhinged rants – just an honest weighing of pros and cons.
Once you have assembled a shortlist of potential home warranty firms, but each under the microscope. You could do this yourself by e-mailing or calling each firm. If you want to save time, though, make use of a home warranty review site.
Unlike consumer-focused sites, these break down what each company has to offer. From coverage caps to the average premiums/service fees, they lay out the numbers for you. Which one should you use? In our experience, ReviewHomeWarranties.com offers the best home warranty reviews – click through a few, and we’re confident you’ll agree.
The right home warranty firm can save you a bundle annually
Money troubles aren’t fun. However, crises bring out the best in all of us. If you’re looking for solutions to prepare ahead, or just to offset your out-of-control repair costs, a home warranty might just be it.
Like anything when it comes to money, always make sure your personal needs are taken into consideration before making a decision!
Question: Have you thought about getting a home warranty?
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $200,000 in student loans with his wife in less than four years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, helping others with their debt and recommend using Personal Capital to track your finances.