If you’ve been reading my blog for any length of time, then you know that I’ve been looking for a home. I’m not yet officially a homeowner, but I signed my life away yesterday, so it’s time to share the long and sometimes torturous story of how that happened.

Deciding to Become a Homeowner
My husband and I thought it would be a long time before we could afford a home. Then the market turned. Condos seemed to drift within reach. Then the market collapsed. Suddenly we were considering actual houses.

We started in 2007 by randomly visiting condos to get a feel for our taste. We only did it a couple times. In late 2007, we started to pay down debt so our debt to income ratio would be reasonable. In late 2008, we paid off a good chunk of debt and started working on the down payment. We also budgeted out what we thought we could afford at that time – a safe, conservative number, not a stretch number. We included future goals for our income, like childcare and retirement, in our budget.

Visiting Open Houses
In January, 2009, it was time to get serious. We started by visiting 3-6 open houses each Sunday for a month in different potential neighborhoods. This allowed us to see what was potentially available.

Tip: When visiting open houses, keep the listing sheets. Note what you did and didn’t like about the home. Flag those you really like as a guide for your agent when you hire one.

Speaking to a Mortgage Broker
Around this time, I also called a mortgage broker friend to get pre-approved. Rather than let him run our credit and see how much we could qualify for, I told him the monthly payment with taxes and insurance that we believed we could afford. I listed our income and debts and then he ran our credit to give us a max purchase price. We used this to guide our open house visits – there was no point in looking at homes we could never afford.

Hiring a Real Estate Agent
By March, we’d narrowed down our options and decided to get serious. Our initial goal was to buy by May. Ha! I interviewed a couple of real estate agents and chose one. I sent her the listings for the few houses we’d liked. She then pulled a few initial listings for us to go look at. She also had us get pre-approved with a bank that she’s worked with. If you’re looking at foreclosures, most banks want to see an approval from a bank rather than a broker.

Taking Detailed Notes about Potential Homes
We created a home-buying checklist that I’ll be posting shortly with detailed instructions. Our real estate agent said we were the most prepared buyers she’d ever seen. In addition to our checklist, we also brought a digital camera and a measuring tape. Interestingly, the types of homes we could look at changed drastically once we hired the agent. As time passed, larger homes also become available within our price range.

In my next post, I’ll review each of our offers and how we came to make them. Once we started working with an agent, it still took us 6 weeks to find a home worth making an offer on, and more than 3 months to actually get an offer accepted and go into escrow. That’s partly because the market completely dried up thanks to lender skittishness and foreclosure moratoriums. Nevertheless, we stuck it out and emerged victorious.

Recently my doctor advised me to avoid stress. I think that’s a standard line from doctors, even for people like me with no health issues. Nevertheless, I laughed and told her that would be difficult because I’m in escrow. She said that was good stress. From where I sit, it doesn’t feel good. I think I’m more stressed now than I’ve been at any other point in this six-month journey. Here are the five most stressful parts of buying a home, at least from my perspective.

Looking for the Right Home
In a normal market, this might be easy. In this market, looking at endless homes to find the right house is very stressful. You visit house after house until they all blend together. When we were just looking at open houses, it was pretty easy, although the homes we saw when we didn’t have an agent looked nothing like the homes we saw when we did!

Making Your First Offer
Actually, deciding whether to make an offer is pretty stressful, too. We considered making offers on two houses before finally finding the right one. We were exhilarated, but then the stress set in as we waited for an answer. The offer on the next home was easier, but not completely smooth as we waited to find out if the bank had stopped the foreclosure sale after receiving our offer. By the time I got to the third offer, I felt fine. I was excited about the house, but blasé about the process until the day we realized we would probably get this one. That’s when I called my parents to ask them to visit us to check out the house and offer their second opinion.

The Appraisal
This used to be an easy step, but now it’s pretty stressful. It took 8 days to get our appraisal back and we sweated it the whole time. It was possible that the home would appraise low, although we certainly wouldn’t have offered what we did if we didn’t think it would appraise. Still, you never know what will happen under the new system. I practically did cartwheels when the appraisal came in at our purchase price.

Loan Approval
Once the appraisal is in, the loan goes to underwriting and here comes more stress. We were pre-approved by an experienced loan officer, so he was confident we would be approved, but it’s still stressful. Here’s a tip: once you start the home-shopping process, don’t do anything that affects your credit. No major purchases, no new loans or credit cards. You can, of course, pay off debt if you have extra money after your down-payment and closing costs and reserves are met, but don’t take on new debt. Don’t close any accounts. We also stopped transferring money from our checking to our savings once we went into escrow in order to avoid any questions.

I nearly did a back-flip when our loan was approved, except for the rent verification which still needed to be met. I knew we’d get it and be fine, but it was very stressful while we waited for the bank and the landlord to communicate. I finally went down there and took care of it myself.

Closing
We’re not there yet, but this is also stressful. Once you get everything to the lender and the loan is approved, you’re at the mercy of other people getting everything done on time. Escrow has to prepare the HUD-1 form and get it to the lender. If there are corrections to be made, they have to do that quickly. Once the form is done, your lender orders the loan documents. They have to be delivered to escrow, which arranges for you to sign them. Then after you sign them, they have to go back through underwriting.

Your loan could be rejected at this point – which happened to friends of mine when an appraisal issue arose at the last second. They got it ironed out, but it was stressful. Then you wait for the loan to be funded and the deed to record and then finally you get the keys. So even as you sit on third base and the batter hits it into the stands, you might not make it to home plate. That’s stressful! If you’re at this point, don’t make any changes to your credit because it could cause your loan to be rejected. Wait until you have the keys to buy your appliances.

I’m not expecting anything to go wrong with our loan. Everything seems to be in order and our loan officer is very careful about making sure he has everything he needs. However, I’m not yet ready to say I bought a house. I won’t do that until those keys are in my hand. Until then, I’ll do my best to get a good night’s sleep and not take to the bottle.

It seems like a simple request. The bank will contact your landlord to confirm that you’ve paid your rent on time for the last 12 months. If you have a reliable landlord, a simple phone call is all it takes. If you have an idiot for a landlord, this process could threaten to delay your closing, as it’s doing in my case.

Verification of Rent Form
Some banks request a “verification of rent” form. Your landlord should be able to quickly and easily complete the form and fax or mail it to the back.

This is where the trouble started for us. We learned three weeks ago that our lender couldn’t reach our landlord. We supplied a different phone number. Our loan was approved this week, except they still needed rent verification. They faxed the form Monday. And then again Wednesday. And then again Friday. On Friday, when we stepped in, the management company promised they would fax it back in 20 minutes. They didn’t. I now have to go to their office and sit on them until they fax the form.

Alternatives to Landlord Confirmation
Had we known what a hassle this would be, we would have prepared in advance by ordering check copies. Our bank allows us to print 6 months worth of checks online, but it then takes 7-10 days to mail check copies after that. If we’d ordered the checks when we first became aware of the problem two weeks ago, we’d be done with this, but our lender prefers to receive the form.

What to Do to Avoid this Situation
If we can’t get the rent verification completed on Monday, we may not be able to sign our loan documents by Friday, which means we wouldn’t be won’t be able to close by the end of the month. If that happens, we won’t be able to take possession on the first of the month and will lose a weekend for painting and maintenance before we move in. We may also after to stay in our apartment an extra week, which would cost money. (Although we’ll scream about that to the management company, since this is their fault.)

If you know that your management company or landlord is difficult, prepare yourself in advance:

  1. Alert the landlord or manager that you’ve entered escrow and will need rent verification from them.
  2. Gather needed phone numbers. We didn’t know the bank needed phone numbers until they’d already attempted to reach the management company.
  3. Order check copies. It may cost a few dollars, but it’s worth the piece of mind to not be scrambling at the end if something goes wrong.
  4. Call the landlord after you know the rent verification form has been sent to confirm that it’s been received and returned. If it hasn’t, call repeatedly until it’s resolved.

If you’ve ever had to make repeated requests to get repairs made, then you should probably assume that your landlord or manager won’t verify your rent properly. If that’s the case, order the check copies now to avoid the hassle later. At this point, I have no other option but to go there and wait until I receive confirmation from my lender that they’ve received the form. Even it means being late for work, I will wait.

In addition to buying a new home, we’re also planning to make several other major purchases, including a washer/dryer set, a fridge, a dining room set, china, a new family room set, a living room set, a new sofa bed for the guest room, a new TV, and a new TV stand. Plus the usual stuff like lamps, towel racks, etc. that make a home feel lived in.

That’s a lot to spend, especially after shelling out a six-figure down payment. We’re also looking at other big expenses like property tax and repairs that will total around $6000. Some of the repair money may come from the bank as a closing credit, but some will have to come from us.

How to Prepare for Major Purchases
Obviously, we won’t be buying all those things right away. We’ll buy the washer/dryer before moving, but everything else will wait so we can buy them during the next six months to eighteen months. Here’s how I budgeted for the items so we can buy what we need without going into debt.

Shop Online for Prices
The first step I took was to shop online for items that met my quality and price standards. I don’t want to buy something so cheap that it won’t last more than a year, but I don’t need an heirloom dining room set, either. I want an energy-efficient washer/dryer set, but I don’t need top-of-the-line bells and whistles. So, I compared prices at various stores to set a budget for each item.

Determine a Time Frame
Some items we need immediately, like the washer/dryer. I’m not dealing with a Laundromat! I first thought we’d need the fridge right away, too, but we’ve decided to move our fridge with us so we can get some cabinetry modified to fit the fridge we like. Once again, I don’t need a top of the line fridge, but I do want something that will meet our needs for the next decade.

Other time frames were trickier. I learned in April that I’m hosting Thanksgiving dinner for nine, so I’ll need to buy the dining room set, or find a set of sawhorses and plywood and some borrowed chairs, by November. If I want to serve a fancy dinner, I’ll need to buy the china, too. We didn’t receive any for our wedding, which I’m okay with because I don’t like the original pattern anymore. I also found an online place to buy it at a big discount, but it’s still a big expense.

Once we went into escrow, I also listed out other projects specific to our house (landscaping, for example), an amount, and a target price.

For example:
Dining Room set – $1500 – 11/09
Washer/Dryer – $1200 – 08/09
Sofa Bed – $1000 – 09/09
China – $1500 – 11/09
Backyard steps- $2000 – 08/10
Service panel – $2500 – 11/10
Property tax – $3500 – 12/09
Property tax – $3500 – 04/10

The list is much longer, but you get the idea.

Determine Your Savings Rate
In order to avoid going into debt to buy these items, I then calculate the time until I’d like to complete the project. I divide the target price by the number of months to get the amount I need to save up. For example, our electrical service panel should be replaced. If we do it in 15 months, we need to save $166 a month until then.

Reprioritize if Necessary
I also have to make sure I maintain my other goals like rebuilding our emergency fund, buying a new car, and saving for retirement. If saving up for any of these house purchases or projects puts the other financial goals at risk, I’ll either have to buy something cheaper or extend out the target period. Some things can’t be pushed out – like property tax – so I have to make those top priorities.

Start Saving
Now, each month, I’ll set aside money for each project. We already budget for irregular expenses, so these will go in that category. If I can’t meet all of them, choose one to push back. The goal here is to avoid debt. My only exception is the 12-months no interest deal offered by some appliance retailers. Even though we have the cash, I’m considering using one of those offers if we can’t find our desired appliances as scratch and dents. In some cases, taking advantage of the deal also gets you free shipping and an additional discount. Since we know we can pay it off within the timeframe without interest, it might be worth it if it saves more money.

I already know that more things will come up as we get settled in our new house, but we’re also aware that we don’t have to do everything at once. Sure, there are a few upgrades we’d like to do, and some repairs/changes that need to be made quickly, but this is a long-term home, not a flip. We’ll take our time, pay cash, and do it right.

As we inch closer to closing on our house, I’m working down our checklist of minor decisions to make. If you’re planning to move into a house here are a few things to consider in advance. If you’re recently moved, please share your wisdom!

DirecTV or Cable?
The house we bought has DirecTV dishes already installed, so now we’re trying to decide between DirecTV or simply transferring our current cable over. The first year, DirecTV is cheaper. The second year, cable is cheaper depending on the number of Premium channels we opt for. However, our cable box broke this weekend, which isn’t earning points for the cable company. We still haven’t made the final decision on this.

Home Phone or Cell Phone?
We’re also still debating whether or not to keep a home phone in our new place. On the one hand, we rarely use our home phone. On the other hand, you can’t trust VOIP in a major earthquakes, and cell phones are questionable. We would also need a home phone line if we wanted to use the installed alarm system. Once again, no decision yet.

Standard Fridge or Fridge with Ice Maker or Water Dispenser?
We’re moving our current fridge in because we need to get some carpentry work done before installing a new fridge. We’d also have to get a water line run through the floor if we want to buy a fridge with a built in ice-maker. We have a filtered tap on the sink, so no need for a water dispenser on the front. So, we’re debating whether we should buy an ice making freezer or not.

Professional Movers or Friends?
Since we’re moving into a house and are over the age of 30, we’re hiring professional movers. We’re just not up to all that lifting and hassle anymore. The movers will also be much faster than us and our gang of friends. However, we’ve both moved in the past with the help of friends. As long as they’re good friends and you’re up to the job, start rallying friends well ahead of the big day.

Professional Painters or Friends?
In this case, we’re asking friends and relatives to help paint. We’re not doing all of the rooms before moving in, just a few, so it’s a job that can be tackled in a weekend. In this case, the cost savings is also substantial. Professional painters would cost over a thousand dollars for just those four rooms. We can buy paint for less than $500 and borrow most of the supplies.

These are just some of the many decisions we have to make in the next two weeks. If you’re planning to move, keep a notebook handy and add to your list of decisions each time something pops into your head. You should also keep a list of things to buy and a checklist of things to do. Add to it as you go to make sure nothing’s forgotten. With some things, it won’t matter if you forget them, but with others it could cost you a lot of money if you miss a deadline.

If you’ve moved recently, are there any seemingly minor decisions that became major? I’m sure there’s something we’re forgetting.

When the home prices were rapidly rising, most people comfortably made high offers without worrying about the appraised value. Most of the time, the appraisals would meet the target. Now, partly due to falling prices and partly due to the new appraisal system, 20-30% of appraisals are coming in low, leaving buyers to wonder whether they should pay the purchase price or the appraised value.

Should You Buy a Home for More than the Appraised Value?
The simple answer is no. Of course, there are exceptions. If you’re buying a distressed home by a major architect at a bargain and planning to fix it up, you may well want to pay more than appraised value because it will be worth much more once it’s restored (assuming you do it properly). However, odds are good you’re paying all cash in that scenario, and may not even get an appraisal.

99.9% of home buyers aren’t in the situation, which means that 99.9% should not pay more than the appraised value, especially in a declining market.

Why You Shouldn’t Pay More
Paying more than the appraised value essentially means that you’re paying more than the house is worth. You’re losing money right out of the gate. Given that home prices in many areas may still slide downward, why would you willingly lose money on day one?

In addition, lenders will base your loan on the appraised value, not the purchase price. If you opted for 20% down, then the lender will only lend you 80% of the appraised value, which means you’ll have to produce extra cash to make up the gap between value and price. The other option is to find a different type of loan, but that will cost you much more in interest.

What If the Appraisal Is Wrong?
This does happen. If you feel the appraisal is wrong, you can get a second appraisal or appeal the first one, especially if inaccurate comps were used. However, you should carefully research the factors behind the appraisal. If the square footage is wrong, make sure that the actual square footage matches that listed on the property records at the assessor’s office. If it doesn’t, you could be dealing with an unpermitted addition. Although it would appear to increase the home’s value, it could actually cost you a bundle to correct defects in unpermitted construction.

How to Handle a Low Appraisal
In the event that an appraisal comes in low, you can do one of the three things:

  1. Make up the difference in cash.
  2. Ask the seller to renegotiate the sales price.
  3. Cancel the deal.

Personally, I would choose either two or three. With two, I would ask that the purchase price be reduced to the appraisal price. Some sellers will offer to split the difference. I wouldn’t do that, because even if you split it, you’re still overpaying. The seller may insist that they “need X dollars from the sale.” That may be true, but if the home appraised low, they’re not going to get it. They can either accept less or stay in the house.

I know it’s difficult if you really love a house, but you have to be prepared to negotiate hard or walk away if the appraisal comes in low. In this market, it doesn’t make sense to go into a home in a position of weakness.

As soon as we started looking for a home with a real estate agent, she advised me to get preliminary quotes from several insurance companies so we would be able to move quickly once we went into escrow. If you’re getting a loan, you can’t close the loan without insurance in place, and the first year’s premium will be paid through your escrow company in advance.

How to Research Homeowner’s Insurance
The initial research is simple. Follow these steps to accomplish the task in a few hours:

  • Approximate the average price, size, and age of the homes you’re looking at. In our area, that was about 1500 square feet and built in 1950.
  • Compile a list of potential insurance companies. Ask friends and relatives who own homes for recommendations.
  • Check your state insurance commissioner’s website, online review sites, and the Better Business Bureau’s site for ratings for each prospective insurer for homeowners and auto insurance (if you drive.) A combined policy will save you a few hundred dollars every year.
  • Visit the websites of three or four your top choices for online quotes. It will take a few minutes to complete the forms on each site. Most should supply you with an instant quote. For your auto quote, base your decision on the level of coverage you’ll need after you move into the home, not the lower level you most likely have now.
  • Contact your current auto insurance agent for a quote. You may get an additional discount for being an existing customer.

How to Choose an Insurer
Although you’re more likely to use your auto insurance, I decided to choose my insurance based on the best homeowner’s coverage because it has a much higher value. On the insurance websites, you can run different scenarios to adjust your cost. You can’t change the value of your home – that’s based on a formula – but you can adjust the deductible, the personal liability coverage, and a few other factors. I chose a $2500 deductible and a million dollar personal liability rider.

I narrowed it down to two possibilities, one of which is my current auto insurance company. When we went into escrow, I called each for a specific quote for the specific property. The quote I received was actually lower than the online quote, despite the home being larger than my estimate.

When making my decision, I relied on three primary factors:

  • Reputation – Does the company have a good BBB rating and insurance commission rating?
  • Coverage – Does the homeowner’s policy include the coverage I require?
  • Price – I wouldn’t automatically choose the cheapest, but I wouldn’t choose the most expensive if other factors were equal.

Once you have your quote, get the agent’s name, phone number, fax number, and any other information you need to complete the escrow form and submit it as quickly as possible. Our escrow company requires the information at least 10 days before closing to avoid delays.

At some point during the mortgage process, you’ll be faced with this mysterious item known as “title insurance.” There are actual two types of title insurance. If you’re getting a mortgage, you’ll be required to get the first type. You may also opt to get the second type.

Title Insurance Defined
Title insurance offers protection in case there is a defect in the title. That is, in case someone tries to make a claim against your house for something a prior owner did, or in the event that title was improperly passed.

Lender’s Title Insurance
The lender’s title insurance protects the lender from losses in case the title is later proven to be improperly issued due to inaccessibility of the land, liens, or defective documents.

Owner’s Title Insurance
An owner’s title insurance policy protects you, the homeowner, from losses in case a clear chain of title can’t be proven, previous fraud on a title transfer, errors in title records, or other encumbrances to your ownership.

Is It Necessary?
Title claims are rare. In some cases, a title can be clouded due to fraud, but usually it just means something was improperly recorded. As part of the title insurance process, the title insurance issuer will research the recording history and declare a clear title. If title can’t be cleared, then you don’t buy the house. However, most people can’t get past this step without first paying for the title insurance policy. In this sense, title insurance protects you from the possibility of a future problem. The premium is more of an add-on, because it’s unlikely the policy would be issued if title problems were found at the time the policy was written.

What Does It Cost?
This is the tricky part. Title insurance can cost anywhere from $800 to $2,000. Depending on your purchase situation, you may be able to choose the title insurer and negotiate the rate, but you might not be able to. Nearly 80% of this fee is commission, and only 20% is for the actual insurance premium.

Do You Buy It Annually?
Unlike homeowner’s insurance or a home warranty, you only buy title insurance once. If you refinance, the new lender may ask for a new title policy, but some insurers will offer to update your current policy at a reduced rate. If you’re refinancing, ask the title insurer about this. Of course, you will need a new policy if you sell your home and buy a new one.

The fact is, it’s not that expensive to run title searches now that most county records are digitized. While they do offer an important protection and provide an important service, it could be done for far less than title insurers currently charge. Unfortunately, they’ve dug their way into the system and there’s little likelihood that we’ll get rid of the system anytime soon.

You’ve probably seen distressing news reports about the failure of the new home appraisal process (called the Home Valuation Code of Conduct) for loans eligible for purchase by Fannie Mae and Freddie Mac. It doesn’t apply to FHA loans or jumbo loans. Since the new system went into effect on May 1, 2009 it has sent home appraisals into chaos. Some deals are falling apart, and appraisers, loan officers, consumers, and real estate agents alike are complaining about the whole process.

The New Appraisal Rules
Under the old system, your loan officer would review a list of approved or known appraisers familiar with the location of the home and then choose one to schedule the appraisal. It usually cost the consumer about $300 and took about 3-5 days. The appraiser, the lender, and the real estate agents could all communicate with each other. Some large banks did use appraisal management companies (AMCs), but loan officers could still contact the appraisers assigned by the system. If your bank didn’t approve your loan, you could take the appraisal to another bank without paying again.

Under the new system, the loan officer can’t speak to the appraiser. Instead, the lender orders the appraisal from the AMC. The AMC assigns the next available appraiser in the geographic region. The appraiser conducts the appraisal and enters the report into the system within 24 hours. The appraisal is reviewed be a supervisor who may not be local. It is then sent to the loan officer.

Why the New System is Bad for Everyone
Consumers:
the major reason this new system is bad for consumers is the cost. Instead of the average $300, it now costs at least $400. Ours cost $540 because our home is worth more than $500,000. In addition, we had to pay that up-front via credit card rather than pay it at closing.

Appraisers: Rather than receiving the bulk of the appraisal fee, most appraisers now receive $200 or less and have to turn it around faster. In addition, they may have to conduct an appraisal far outside of their area of expertise. In our case, the appraiser came from a different county, nearly 40 miles away.

Real estate agents: Real estate agents are concerned because the appraisals are derailing contingency periods, while REO sellers (banks) are pushing for shorter contingency periods. They’re also concerned that appraisals are coming in low. Low appraisals may be valid if they reflect the market, but they’re a problem if the low value is based on inaccurate comparables.

Lenders: Finally, lenders don’t like the new system because they’re cut off from the process. The loan officer can’t call the appraiser to check on a late report. If there’s a problem, they can’t contact the appraiser to have it corrected or supply more accurate comps.

I spoke to our loan officer today and he said about 2% of appraisals come in high. 70% come in on target. Nearly 30% come in low.

Our Appraisal Story
We’re buying an REO, which means the bank insisted on a 10-day contingency period for our inspection, appraisal, and loan application. Traditionally, appraisals are conducted before inspections to avoid wasting money if the appraisal comes in low. Initially, were going to have to do our inspection immediately because of the short timeframe, but the bank was slow to assign an escrow company, which bought us enough time to get the appraisal done first. Here’s the timeline from the day our offer was accepted.

Day 1: Offer accepted. Interest rate locked. Appraisal ordered.
Day 2: Updated financial documents delivered to complete loan application.
Day 3: Appraiser calls our agent to confirm appraisal.
Day 5: Appraisal conducted.
Day 8: Escrow opened. Contingency period starts.
Day 9: Appraisal returned. It came in exactly at our purchase price, and our file was sent to underwriting.

From what I hear, this was a relatively quick process. Some people wait 10 days or more to get an appraisal.

Why the New System Was Introduced
As we all know, there was fraud in the system. Washington Mutual had a cozy relationship with appraisers and would demand that they “hit the number” or risk not being assigned another appraisal. This led to the rapid increase in valuations, many of which were not sustainable or were tied to fraudulent loans.

New York Attorney General Cuomo threatened to sue over this fraud unless the new system he created was instituted by Fannie Mae and Freddie Mac. The irony is that Washington Mutual was using an AMC it owned. Furthermore, AMCs are unregulated. Independent appraisers are regulated. So he took a regulated system with some bad actors and replaced it with an unregulated system that does little more than reap massive profits for AMCs, most of which are owned by banks.

We were lucky. Our appraisal was returned quickly (but not without a week of stress for me.) The appraiser did a good job and pulled appropriate comps. Most of all, we can afford to pay the appraisal fee up-front. Although it will be credited back to us at closing by the lender, but we’ll have to pay our credit card bill before we close.

If you’re in the process of buying a home, you need to be aware of this new system and plan accordingly. You may also want to ask your agent to pull his or her own comps in case you need to make a case for your purchase price.

You’re probably familiar with the warranties your electronics came with – those convoluted promises it’s impossible to make a claim under. A home warranty is not exactly the same, and it can be issued on a house of any age. If you’re a new owner, you should get one. Current owners should consider it.

What a Home Warranty Is
A home warranty is a service contract on the appliances and systems in your house. If your dishwasher breaks down, you can file a claim under the home warranty to have it repaired or replaced. You’ll have to pay a service fee for the initial visit to diagnose the problem.

What It Includes
The warranty is not for items like the foundation or roof, although you may have a separate warranty for these if you’re buying a home directly from a builder or the home was built very recently. If you have an older home, those items would be included in the homeowners insurance policy. This warranty typically covers the systems, which are often excluded by your insurance policy:

  • HVAC
  • Appliances
  • Water Heater
  • Plumbing
  • Electrical

Before buying a policy, review it carefully to make sure the systems in your home are included. For example, well pumps aren’t usually automatically included. If your systems aren’t included, ask if there’s a policy or add-on that does include them.

How Much You’ll Save
It depends on the problem. If it’s a minor problem, your service fee may cover the cost of the repair. However, if it needs replacing, you could save thousands of dollars on a new heating system or major plumping repairs.

How to Get a Home Warranty
If you’re shopping for a home, include the home warranty in your offer as one of the items paid for by the seller. The seller may not agree to this cost, but most will. If the seller won’t, you can buy it yourself. Some real estate agents will buy it as a gift for you at closing.

If you already have a home, you can add a home warranty at any time. You can renew it annually.

Warranty Costs
The cost of a home warranty varies by region. It can be as low as $250 and as high as $500. Service fees also vary by region and service, but can range from $25 to $100. If you have a new appliance with an existing warranty, that should be your first call. However, if you have an older appliance, the home warranty may extend the coverage without the added expense of an appliance-specific extended warranty. As someone who spent a year fighting a major appliance dealer to have the extended warranty honored, I can tell you the high cost of the extended warranty isn’t worth it. Just get the home warranty.

Why New Owners Need It
If you’ve been living in your home a while, you know the issues that generally occur and about what it costs to fix them. You know how old your systems are and when you can expect to replace them. As a new owner, you don’t always have this information, and haven’t had time to save up the money for the needed repairs or replacement. You don’t want to be five months into your new home and discover the heating unit has broken at the start of winter, and then have to come up with $2,000 to fix it.

Even though it seems like one more expense to add to an already expensive process, a home warranty is key for new h

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