Every year, renters are converted to owners by irresistible pitches. Ditch your landlord, gain the freedom to plant a garden, pay less per month on a mortgage than rent – all are compelling in their own way.
The last one is particularly appealing – saving money while building equity is one heck of a value proposition. However, shortly after the real estate agent hands over the keys, it quickly becomes apparent that homeownership ain’t cheap.
*Disclosure: This is a partnered post. Read our full disclosure policy here.
Insurance premiums, property taxes, and increasing interest rates are just a few costs new home buyers forget to think about. These factors are mostly out of your control, but not all are. You can minimize home maintenance costs by being proactive.
Preventative maintenance, like cleaning gutters and running dehumidifiers in damp basements, definitely help. However, acquiring a home warranty is a step most homeowners overlook. In this article, we’ll explore how home warranties can reduce maintenance costs for some homeowners.
The average annual home maintenance bill can be alarmingly high
Of all household expenses, home maintenance is among the sneakiest. Unlike mortgage payments, which you owe at specific times, maintenance bills can pop up when you least expect them.
When your furnaces dies in the middle of winter, it can cost thousands – you either pay up or you freeze.
Costs vary from year-to-year, but even averaged out over time, they can be high. According to Statista, the average American homeowner spends 168 USD per month on home maintenance. Over a year, that means over 2,000 USD is spent fixing and maintaining various systems and appliances.
Bear in mind this is an average – some years, you’ll spend less, but in others, you’ll shell out more. When a real estate agent sells us the dream of homeownership, we often don’t think about its realities. This miscalculation can land us in hot water when the time comes to pay the bills.
Character homes can cost you dearly
Buyers that snap up older, character homes can end up in an especially vulnerable predicament. Unlike newer houses, the systems and appliances in that cute Edwardian have likely been around for decades.
Brass and copper pipes have a lifespan of 50 years – steel, less than 20 years. Replacing this system can cost between 1,000 to 5,000 USD. Foundations can crack or shift over time – repairing these issues can cost well into the five figures.
There’s no way you can ignore these issues. When a pipe blows, the resulting water damage can wreck your electronics and render your house temporarily uninhabitable. An unstable foundation can cause many structural problems, such as damaged ceiling beams and doors that won’t close.
Don’t misread us – owning a character home can be fun. However, you shouldn’t underestimate the immense responsibilities that come with maintaining them.
Home maintenance costs can put you in a precarious financial position
Even if you don’t live in a 100-year-old Tudor, your newly-bought home can have more than its share of issues. According to the National Association of Home Builders, the average house was 37 years old in 2015.
When you move into that 1970s-style bungalow, the appliances it came with may be well over a decade old. You may need to replace its brass plumbing within ten years.
If you’re like the average American, having anything go wrong could put you in financial peril. A recent report on CNBC revealed an uncomfortable truth: 40% of us can’t afford a 400 USD emergency.
Even worse, most of us live paycheck to paycheck (78%, according to a recent report by CareerBuilder). If the fridge dies, we plunge into overdraft or credit card debt. After your first incident, the thought of it happening again can trigger many sleepless nights.
Home warranties offer savings and cost certainty for homeowners
It doesn’t have to be this way. Actions can be taken to ensure your economic security. For instance, you could set up a savings account for maintenance and auto-debit money to it each month.
However, if this doesn’t work for you, perhaps a home warranty would. It mimics your homeowner’s insurance, in that you pay a monthly premium, and a deductible (service fee) when a repairperson performs maintenance.
This model offers predictability. Instead of shelling out thousands when something major goes wrong, you pay a predictable sum monthly. This arrangement makes it easy to slot home maintenance into your household budget. As a result, the odds of ending up short on cash goes way down.
If your home is old enough, you may actually spend less on maintenance through a home warranty. To better illustrate this, let’s look at average costs using a home maintenance calculator. According to the one on ReviewHomeWarranties.com, a 40-year-old house could cost you as much as 2,165 USD per year.
But look at your expenses with a home warranty. The average annual premium for a home of this age is roughly 650 USD. Assuming an 80 USD service fee per visit, five calls per year would set you back 1,050 USD. That’s less than half than if you attempted to save for repairs by yourself!
Home warranties aren’t for everyone
As convenient as home warranties sound, they aren’t the best fit for all homeowners. If you just moved into a brand-new suburban home, they are objectively poor investments. All your systems and appliances will be in mint condition – barring defects, they won’t break down for at least a decade.
Let’s take another look at the home maintenance calculator. According to this model, you can expect only to pay an average of 80 USD per year to maintain a one-year-old home. Meanwhile, you’d be paying 650 USD per year for a home warranty you’ll likely never need.
In other words, that’s 570 USD you could use to buy pizza every Friday night. In this case, you’re better off saving up your own maintenance fund to protect against expensive surprises.
How to pick the right home warranty for your family
So, you’ve decided getting a home warranty is in your best interests – great! Before you call the first company that pops up on Google, though, take time to do your due diligence. For all its strengths, the home warranty industry doesn’t have the greatest reputation.
Before you begin, make a list of needs and wants. You may not need extra coverage for ice makers, but any plan should cover appliances, climate control, and plumbing adequately.
After finding out which firms operate in your area, find out what people are saying about them. A glance at sites like Trustpilot will help you avoid companies like American Home Shield. Given their Trust Score of 1.5/10 and reviews that compare them to a ‘Ponzi scheme’, it’s probably best to focus your attention on other firms.
Once you find better companies (like Select Home Warranty), make a shortlist and contrast them against each other. Get quotes from each firm and ask for them to send a contract. This way, you’ll be able to compare each company on price and the coverage they offer.
However, to save time, a home warranty guide can help. From coverage caps to exclusions, they comb through the fine print to find things you may miss.
One last tip: when reviewing the terms and conditions, check for an auto-renew provision. If they do, your bank account will be billed for another year if you don’t notify the home warranty company. Keep this in mind if you aren’t satisfied with the service you get from the first firm you try.
The more you save, the more you’ll have for what matters
Homeownership offers more than its share of financial challenges.
By being proactive, you can protect the physical integrity of your home AND save money in the process.