What is a Home Warranty?
A home warranty is a policy that covers repair and replacement costs for failed appliances and systems within a home.

Who Purchases the Warranty?
This usually depends on the purchase agreement made between the home buyer and seller. Either party can purchase the warranty. The two parties can even share the cost. Regardless of who pays for it, the warranty is usually purchased during the closing process (also known as "settlement").

How Much Does it Cost?
Cost will vary based on coverage and other factors. Most home warranties are in the $400 to $600 range. When the initial policy expires, there's usually a renewal fee as well.

What Will the Warranty Cover?
Home warranties vary quite a bit. So it's important to ask a lot of questions and read all the fine print before purchasing one. With that said, here are some of the common items covered:

* Heating and cooling systems
* Plumbing systems
* Electrical systems
* Major appliances
* Garbage disposals

What Isn't Covered Under the Warranty?
It's important to understand that a home warranty is not hazard insurance. Hazard insurance (sometimes referred to as disaster insurance) covers your home in case of earthquake, fire, hail, etc. Home warranties cover home systems and appliances that fail.

How Long Do Home Warranties Last?
Most are effective for one year. After that, you have the option to renew the policy. Find out in advance how much it will cost to renew, because renewal is sometimes more expensive than the initial cost of the policy.

Should I Buy a Home Warranty?
In truth, only you can answer this question. The home buying process might drain your cash reserves, so a major repair could put you in a financial bind. In such cases, a home warranty will give you coverage and peace of mind.

Age is also a factor. An older home with systems at or beyond their life expectancy would be a good candidate for home warranty protection. But a brand new home might already have coverage provided by the builder.

If you do decide to purchase a warranty for your home, be sure to shop around and compare prices. Find out what's covered, how long the policy is, and how much it costs to renew. Be a smart shopper.

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and author's note, and also leave the hyperlinks active.

Brandon Cornett

Brandon Cornett is the founder of ArmingYourFarming.com and HomeBuyingInstitute.com. Through Arming Your Farming, Brandon helps real estate agents improve their real estate marketing programs. Through Home Buying Institute, Brandon helps first-time buyers learn about the home buying process. Contact Brandon through either of the websites listed below.