Mortgages are complicated and confusing, and second mortgages are doubly complicated and confusing.
A second mortgage can be an extremely useful tool for your wealth, or it can become a financial trap.
Before you head into the world of second mortgages, there are a couple of different things you should think about.
Read on for an overview of second mortgages and advice to help you determine whether or not you should consider a second mortgage.
What Is a Second Mortgage?
A second mortgage can be a valuable borrowing vehicle in certain circumstances. Here’s how you can benefit from a second mortgage.
How a Second Mortgage Works
A second mortgage is basically a loan using your home equity as collateral. If you own your home, whether you have a mortgage attached to the property or not, you may be able to secure a second loan by liberating your equity that has built up over the years.
Generally speaking, real estate increases in value, so while a typical mortgage can stretch out for up to 30 years, the principal owed on the house steadily falls while the value of the house appreciates.
To find out how much you can possibly qualify to borrow on your home you need to find out how much equity is in your home. This is calculated by estimating the market value of the property and subtracting the payments made towards your first loan so far.
For example, if your home is currently worth $250,000 but you have a first mortgage of $160,000 outstanding on the property, you have managed to amass $90,000 in equity.
Lenders may be willing to allow you to borrow anywhere from 60% to 80% of your equity, which works out to roughly $54,000 to $72,000.
One unique kind of second mortgage is a cash-out refinance. This replaces your old mortgage with a new mortgage. With the new mortgage, it’s slightly larger than the original amount. The larger mortgage will give you a one-time cash payment.
What are Second Mortgages Used For?
As you can see a second mortgage can really represent a sizable chunk of cash, but what are they used for? Well, you can use a second mortgage for anything from funding a child’s education to making repairs on your home.
If you are going to take on additional debt, it should be for something worthwhile. A vacation, however deserved, might be better to save for slowly, than to take on the cost of a home equity loan.
Another option can be to avoid Private Mortgage Insurance.
While Private Mortgage Insurance may not seem like a big deal, it can cost you thousands of dollars over the course of your loan.
It’s almost always worth avoiding PMI if you can,
Getting a Second Mortgage
Now that you understand how a second mortgage mortgage works, we can continue with the process. If you’ve decided that you want to take out a second mortgage on your house, we can help you with the route you should take.
Use a Good Lender
It is an unfortunate truth that there are unscrupulous people and businesses in the world. One of the best options for making sure you are getting a good rate with your mortgage company is to shop around different mortgage lenders.
This is why, we recommend using LendingTree for your second mortgage. LendingTree will shop several different lenders for home equity loan rates and allow you to screen who you apply with.
They are also able to work with you whether you choose a separate home equity loan or decide to do a cash out refinance mortgage. You can learn more in our LendingTree review.
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Steps you Can Take to Get the Best Loan
If it’s been some years since you’ve taken out a mortgage, you might want to brush up on some of the lingo that you’ve going to see.
Go to the bank: The obvious first place to start is with your bank or mortgage company that holds the FIRST mortgage. More than likely they will be happy to give you a second mortgage (assuming you have a decent credit score and history with the organization). It will almost make the payments on the second mortgage easier because you already write one check to the bank for your mortgage, so you won’t forget to write a second one (hopefully).
Shop around: After you’ve talked with your current bank or mortgage company, you can continue to look around with other banks and lenders. More than likely you didn’t go with the first lender you quoted with the original mortgage, so why would you go with the first on your second mortgage? Once you’ve met with several different loan offers at various established, you can sit down and decide which one works best for you. There are a few things you should consider, aside from interest rates (although it’s the most important factor), before picking out a second mortgage.
Look at the loan types: Are they fixed rate or adjustable? This is going to have a huge impact on the amount of interest that you pay over the course of your loan.
Look at the fine print: Are there any balloon payments attached to the loan? Be sure to look at every aspect of the mortgage before you sign any paperwork. Otherwise, you could pay thousands of dollars that you didn’t expect to pay.
Pros and Cons of a Second Mortgage
Pros of a Second Mortgage
Deductible: The good news about a second mortgage is that mortgage interest of up to $100,000 of the principal for married couples and $50,000 for singles is deductible on your tax return as well. Although this is meant to be a combined mortgage interest on both your mortgage loans it is still a great deduction, especially if your first mortgage is closer to the end of its life and so has a relatively small portion of interest payments left.
Liquidation: Another (possible) pro of taking out a second mortgage is the ability to liquidate the equity in your home. If you are on the verge of bankruptcy and you need to get access to cash to pay off high-interest loans and back taxes, taking a home equity loan might not be a bad trade.
Low interest: The interest payable on a home equity loan is usually lower than other types of debt because it offers the lender the security of your house. Depending on your situation, this could be an excellent way to lower the amount of debt you have and save you money on monthly interests.
Cons of a Second Mortgage
Taking out a second mortgage is not without its drawbacks.
Your home is collateral: For instance, you need to remember that even though the loan does provide you with the cash you want it comes at the cost of putting your house up for grabs in the event you cannot make good on the loan. While we hope it never happens to anyone, it’s not uncommon for some financial tragedy to strike and for a person to lose their house because of a second mortgage.
Expense: A second mortgage is also not without its costs. You have to pay for an appraisal on your house, loan origination and other legal fees associated with an ordinary loan, so although there is a lower rate of interest, there are other costs to consider. If you don’t remember from when you first got a mortgage, the house appraisal and legal fees can add up to be quite a hefty bill. While this probably isn’t going to completely change your decision on a second mortgage, you should at least calculate it into the costs beforehand.
If you’re one that has a rough relationship managing debt, I would strongly have you reconsider taking out a second mortgage to pay off debt.
You first have to fix the root of the problem which is most likely – you. A second mortgage is not the answer for everyone so think about all the factors before making your final decision.
I hear a lot of stories of people who took out a second mortgage to pay off some debts. Sure, the lower interest rate can be very attractive. Why wouldn’t you want to pay lower rates?
Getting a second mortgage to pay off credit card debt or some other consumer debt is only a temporary band-aid.
Alternatives to a Second Mortgage
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For those looking for extra capital to use for things such as home improvements or debt consolidation, a Home Equity Line of Credit (HELOC) is another option.
A HELOC allows you to borrow money against the equity you have accrued in your home. For example, if you bought your home for $300,000 but it is now worth $330,000, you could borrow $30,000 to use for things such as kitchen or bathroom improvements.
Borrowing funds is always a big decision and should only be taken with great consideration. But, a HELOC can be a great alternative to a second mortgage.
For those who are interested in learning more about a HELOC, Figure ncould be a good place to start. This new company is innovating the HELOC game with AI-based approval that streamlines the application and appraisal process.
Other Alternatives
Think of the second mortgage as an emergency lifeboat in this situation. Hopefully, you never need it, but you’ll be grateful for it if you do.
If you are staring at bankruptcy but don’t want to go with a second mortgage, but still looking for a good way to lower your interest amounts, you can always go with a personal loan.
If you prefer to go the way of a personal loan rather than a second mortgage here are some ideas on where to get a personal loan that is best for you, according to Good Financial Cents.
While this might seem like a smart strategy, one thing you never do is borrow against your home to pay off credit cards. I cringe every time I hear of someone pondering that.
That is a major no-no in my book. You are much better off getting a credit card with 0% APR on balance transfers to pay off the old cards. You save tons of money and honestly, it’s normally a lot easier.
Our Experience With a Second Mortgage
We recently took the plunge and built our dream home. Along the way, we learned a lot in the building process, especially when it comes to the mortgage loan process.
Our first home was bought while I was in Iraq, so I cashed in on my veteran status used the VA home loan. With our dream home, we were short the 20% down payment that we needed to avoid PMI (Private Mortgage Insurance).
While we could have used the VA loan again (for refinancing not for first time home purchases), it was actually cheaper to do the traditional loan process and take out a second mortgage.
Second Mortgages, Friend or Foe?
Because of all the risk associated with a second mortgage, they have gained an awful reputation among homeowners, but if done carefully, they can be an excellent tool.
Just like with every other part of your finances, a second mortgage isn’t something that should be done lightly.
Spend some time looking at your financial situation and weigh your options.
By Peter Anderson2 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 14, 2014.
I recently asked my twitter.com followers what they spend on groceries every month. I got answers ranging anywhere $250/month for a family of two to over $600/month for a family of 4. The largest family was a family of 6 who spends $450/month on food. Our food bill for a family of two is often larger than all of these other families.
Food Is Expensive Isn’t It?
For the past few years one of our biggest weaknesses in our budget has been our food spending. Neither my wife or I likes to cook, and as a result we end up eating out several times a week. The food we do buy are the pre-packaged dinners which always costs more than if you just buy the raw meats and vegetables yourself. We like the convenience.
Just a couple of months ago we had a month where we spent over $1000 on groceries and dining out. That’s a LOT of money to spend on food. I think that was a bit of a wakeup call for me. I realized that we needed to get our food spending under control.
20 Tips To Cut Your Food Bill
Here are 20 tips we’ll be using to curb our spending on food:
Eating out less: This may seem obvious, but it is our number one biggest reason we spend so much every month. We eat out several times a week, and on top of that we were eating out for lunch most days as well. When you add it up we’re wasting thousands of dollars every year! We’re not going to stop eating out all together, but we’ll have a “restaurants” budget that will limit this spending category.
Buying the ingredients and making it ourselves: Instead of buying all microwave dinners and pre-packaged meals, we’re going to try to make more of our meals from scratch. Buying from scratch and making your meals instead of just heating them up can mean big savings. Lynnae at Being Frugal does this especially well, check out her post on the subject here.
Not buying as much when we shop: One tendency that we’ve had in the past is to buy a ton of food when we go grocery shopping. If we think we’ll need it in the next couple weeks, we buy it. The result is that we end up having a fridge full of food that we don’t end up eating. We almost always end up throwing a bunch of old moldy food at the end of the month. It usually works better when we take several smaller trips to the store, only buying what we think we’ll need for that week.
Plan your trips to the grocery store: Make sure you’re planning your trips to the grocery store, because while making smaller trips to the store can save you money on buying un-needed groceries, it can also cost you money through gas prices. Make sure you’re planning your trips to the store so that you can make multiple stops in the same trip (if you need to) and make sure to keep a list during the week so you know what you’ll need and where you’ll stop. Aimlessly driving from store to store will NOT save you money. For tips on ways to save gas money while you’re driving around, see this post.
Look out for bargains: When you’re grocery shopping keep your eye out for bargains. If you find something that’s on sale, buy extra and stock up. This usually works best on canned items, pasta and things that won’t spoil. (See the tip above about buying less to save – Don’t buy 20 gallons of milk if it is on sale.)
Stop drinking soda pop: Stop or cut back on drinking soda. For my wife and I just stopping the pop intake was hard/impossible, so we’ve at least cut back. Start drinking more water or buy cheaper powdered flavored drinks. You’ll feel healthier and you’ll be better hydrated.
Cut back on junk food: Commercial snack foods are costly and usually unhealthy. Instead buy some veggies and dip, and eat some healthy food while you’re laying around.
Buy generic in-house brands when possible: When you’re buying foods try and find generic alternatives to the brand names you usually buy. Most stores will have an in-house generic that is often just as good as the brand name, while costing quite a bit less. In some cases I actually prefer the generic!
Don’t eat meat every night: Instead of making a meal with meat every night, try making some vegetarian dishes with other sources of protein like beans. It will probably be healthier, and you can save a lot of money on meat if you just make meat-free dishes a few times a week.
Avoid buying snacks in vending machines or convenience stores: This is one of my weaknesses – spending on snacks at work, when I fill up gas or when I’m stopping at starbucks. Instead of buying your snacks, buy some healthy snacks and bring them with you.
Use Coupons: Actually using some of the coupons we get every week in the mail is a great way to save money – we just have to remember to bring them with!
Plant a garden: Supplement your food by planting a garden in your backyard. It doesn’t cost much to get one of these going, and you’ll have some nice fresh veggies to eat! Check out FrugalDad’s square foot garden to get a nice start!
Make extra when you find good deals on meat – and eat the leftovers: When you’re making food, try to always cook extra, and freeze the leftovers into meal sized portions. Or if you’re really ambitious, use the “cook once, eat for a month” method that a lot of people are talking about. When you see good prices on meat, buy extra, take a day where you cook meals and then freeze meals and lunches for the next month. Saves money and time!
Participate in The Grocery Game: When you play the grocery game at The Grocery Game’s site, you’ll get a weekly list of the lowest-priced products at your supermarket matched with manufacturers’ coupons and weekly specials — advertised and unadvertised. The service does cost $10 every 8 weeks, but many have found that they save far more than that by using the service.
Use deals websites like MyGroceryDeals.com: MyGroceryDeals.com allows you to enter your zip code, and find deals at your local food stores, pharmacies and other retail outlets. For my zip code it comes up with about 16 different stores with 650+ deals available. Download their Grocery Savings Tips E-book here.
Never shop on an empty stomach: Try not to go shopping when you’re on an empty stomach. You’ll end up buying a bunch of stuff that looks good, that you don’t really need.
Shop using cash so you don’t overspend: Set up a budget and only go grocery shopping with cash. If you run out of money, put something back. When you use a credit card you’re that much more likely to spend more money on things you don’t need.
Eat smaller portions: Save money by eating smaller portions, and freezing any leftovers to eat later for lunch or dinner. Most of us in this country eat too much food anyway, eating until we feel sick. Control your portions and you’ll be healthier, and you’ll spend less on food!
Don’t think you have to buy two to get the discount: Often an item will be advertised for 2 for $5, or 2 for the price of 1. That makes you think you need to buy two items to get the discount. Often you can buy only one if that’s all you need. Buy just one item and save!
While you’re at the store, pick up your free Redbox rental: While you’re out saving on your groceries, you may as well save on your entertainment bill as well. Many grocery stores now have a Redbox.com movie rental machine where you can get your movie rentals for just $1 a night – or less! To find out how to find free rentals at the redbox and save on your Netflix or Blockbuster membership fees, read my post on getting free redbox rentals
So those are some of the ways I plan on saving on groceries (and entertainment) this month.
What are some of your money saving tips when you shop for groceries? Leave your tips in the comments below!
As an Economic Unit in a Capitalist Economy, you probably spend most of your time scurrying about Maximizing your Utility. Right?
You buy things which give you pleasure, or sell them when the cash you’d receive is greater than the pleasure of keeping them. You choose the job that offers the best tradeoff between things like pay, stress, and time consumed, in an industry you chose based on the same criteria.
Even your leisure time is rationally allocated, optimized to get the most happiness from a finite amount of time, with cost factored in and weighed against the amount of extra work required to pay for leisure spending.
Although you’re probably having a good laugh at my deliberately optimistic oversimplification, this is the basis of free-market capitalism itself, and to a certain extent it works. In fact, most of the good aspects of our great leaps forward since the industrial revolution are byproducts of this free enterprise and trade. Neat inventions in food production, medicine, clothing, and everything else that brings us long lives and comfort, are side effects of the incredible ingenuity unleashed by setting smart and hard-working people free to run.
If that were the whole story, we could just shut down the government and sign an Ayn Rand novel into law and be done with it. But anyone with a deeper understanding of the market system is probably waiting to point out the other side of it:
Most of the bad aspects of modern society are brought about by the failure of humans to properly maximize their utility.
In other words, we make some incredibly stupid decisions. And the byproduct is pain, untimely death, and inefficiency.
The standard opinion on this inefficiency is that it’s just a few bad apples in an otherwise good system. Most of us do well at running our lives, don’t we? We know what we want, and our system is good at delivering it to us. But I’d say there is more to the story.
Most Americans, for example, are deep in unnecessary debt, overweight and poorly nourished, inactive and stressed out, and self-sentenced to a mandatory career of unsatisfying work just to stay afloat. We constantly buy things we can’t afford and don’t need, and the majority of the trading we do does not increase our net happiness.
We’re so easily manipulated that advertisers and politicians can pull our emotional strings with ridiculous ease just by replaying the same transparent ruses day after day, decade after decade.
“This $60,000 truck will bring you power and freedom to escape to the Hills of Freedom while towing your bigass boat.”
“This $60,000 SUV will keep your children save while adding a nice veneer of prestige and quality to your suburban life”
“Vote for my political party, and I’ll protect you from the other side who wants to drive this country into the shitter, attack your most core values, and take away all your prosperity for themselves.”
And all of this is done with virtually no awareness of how we are affecting our own ecosystem – the tiny veneer of air and plants that is the only thing between us and the lifeless vacuum of space. In fact, it would be difficult to imagine a less efficient way to maximize “Utility” than what the modern consumer does.
Given all this freedom, why do we screw things up so royally? Is there a way to maintain the power of the market while getting around the general idiocy of our own species?
Fortunately, the answer is built right into you, in the form of the genetic program you received at birth. The reason we suck at running our own lives is that we are evolved and programmed for a completely different set of surroundings. But this handicap can be overcome: by learning about our own weaknesses, we can compensate for them and lead much more productive, powerful and happy lives.
This is where the title of this article comes in. I recently read the book Predictably Irrational by Dan Ariely at the recommendation of some readers. It’s not often that I find a book that crystallizes so many interesting concepts in one swipe, but this book does it. Everything the author proposes just makes so much sense. But as an MIT behavioral economist with mutiple books and over 75 published papers on his resume, these are not just the blowhard opinions of a financial blogger – the man actually does his own research and has an uncanny way of sharing it with the world with perfect accessibility.
There were a few key lessons that stuck with me after finishing this book. They are useful not just as curiosities of human nature, but as practical tools for overriding our innate ridiculousness and learning to live life more sensibly. When applied to personal finance, this equates to easily amassing way more money than everyone else.
And then of course, using that wealth in a more rational way in order to have a much more fun and generous life.
Relativity
Humans make decisions in relative terms, rather than absolute ones. Given a restaurant menu with varying prices, people tend to avoid the most expensive item, but are very comfortable choosing the second one on the list. Restaurants have learned this, so they will often insert a “decoy” expensive dish (which may cost no more to prepare than the others), which allows them to raise the price of everything else, making all alternatives look like comparative bargains. The same thing happens when shopping for clothes, cars, or television sets.
Rationally, we should be comparing list prices to all other ways of meeting the same needs, and to our own income. But our genetic wiring wants us to make quick decisions and move on, and in prehistoric times, comparing in relative terms was the way to get this done.
But this built-in flaw has implications on much bigger things than restaurant choices. We design our entire lifestyles by looking around us to see what everyone else is doing. Most of us position ourselves in the middle of the herd, and start feeling deprived if we sense we are near the bottom. The problem arises when the herd is comprised mostly of sheep, responding blindly to their own irrational instincts. So as a society we have a tendency to automatically run ourselves straight off of the nearest cliff.
Market Norms vs. Social Norms
Most of us know that it is socially inappropriate to ask our friends to cough up money when we invite them over for dinner, or to offer money to a romantic partner in exchange for sex. But if you take those exact two human needs and reframe them differently: it is normal to pay for a meal at a restaurant and the world’s oldest profession continues to thrive.
This is the core of the distinction between “market” and “social” norms. As it turns out, humans obey different rules when operating in a business environment, than they do when they perceive they are among friends and family.
We are more generous when we are reading from the Social Norms playbook, and we enjoy our lives more when doing it. This is why countries and cultures with stronger family and friendship bonds tend to be happier than the cold and impersonal market-driven ones – even if their incomes are lower.
You can use this to your advantage. By bringing more social exchanges into your life, you can live more happily and build a safety net that protects you from the sharpest edges of the market system. I saw a nice example of this about a year ago, when a close friend stopped by and saved my house from flooding as part of a routine visit to water the plants. Invite your neighbors over for dinner, share children back and forth for babysitting, and loan out your tools, lawnmower, and weekend labor as much as you can.
And if you run a company, bring some social norms into the way you treat customers and employees. Instead of dinging people with every conceivable fee or squeezing employees with the lowest legal level of vacation allowance, expand your trust and generosity towards them. Watch as their dedication to you grows and provides benefits much greater than the costs.
Loss Aversion and Overvaluing What We Have
When I wrote the opening story about ‘losing’ $12,000 in an earlier article about Strength, I took some heat in the comments about it:
“You did’t lose the twelve grand, Mustache, you just didn’t get the money in the first place! Totally different.”
But that choice of words was deliberate. I work hard to remind myself that although it feels different to have a brand-new $12,000 car roll off a cliff because I forgot to set the parking brake, or have an expected $12,000 deal fail to materialize after doing all the work, the financial effect is exactly the same, and thus I should not worry about either of them.
In everyday life, loss aversion messes with us more than we realize. We hesitate to sell things we are no longer using, because we become attached to them.
“I can’t sell my pickup truck for $12,000 – I paid $30,000 for it just a few years ago!”
“I don’t want to invest in stocks, because there might be a big crash which causes me to “lose” money. I prefer to keep the money in savings where it is guaranteed not to fluctuate.”
“I am afraid to seek out a new job or find myself a new home closer to work, because I might lose some of the comforts that I have grown accustomed to in the current situation”
.
The way to get around this is to recognize your own irrational loss aversion, and work to compensate for it.
For example, I keep a Craigslist app on my phone and fairly ruthlessly fire out ads to sell unused things when I stumble across them in the storage area of our house. I try to replace emotion with the more rational friend of statistics when deciding whether I should invest money, buy a more full-coverage type of insurance, or take any other form of risk. And in our upcoming move where we are “losing” over 1000 square feet of living space, I remind myself that there is no fundamental rule of humanity that dictates three people will be any more happy with 2600 square feet of interior space than they will be with 1532 square feet. I program myself to feel the “ChaChing!” instinct, which creates immediate gratification in the event of good monetary decisions, to compensate for my natural tendency to want shiny things NOW instead of investing for later.
Marketing and How it Plays Your Ass Like a Puppet
The thing about all of these cognitive biases is that even if you don’t round them up and get control of them, somebody else will. For over a century, the field of Psychology has been unearthing these things and studying them rigorously, discovering the joys and hilarious downfalls of the human animal. And for almost as long, marketers have been picking up the research and honing it for their own advantage. I recently read a quote from the head of one of the country’s largest ad agencies, which went something like this,
“It is generally understood in our industry that we aren’t fulfilling wants and needs – we are creating them. A new product first needs to create a market for itself, before it can be sold into it.”
Isn’t that revealing? I still admire many of the funny and creative people of the advertising industry and my own Dad worked most of his career in it, running his own one-man agency for much of my childhood. In fact, some of the lessons of that industry have surely soaked into my own approach, and you could view this blog as an ongoing Anti-Advertisement which aims to apply some of those principles in reverse.
But by golly, if you are going to be out there trying to kick ass in life and as an Economic Unit, you’d better go to battle with proper armor. And that means understanding your evolutionary weaknesses so you can avoid their tendency to turn you into a Consumer Sucka. We are all idiots at heart, but the more successful among us learn to compensate for our idiocy.
So I’d like to give my thanks to Dan Ariely for writing this book and his amazing contributions to society so far – I’m off to read the rest of what he has written.
If you’re struggling to save enough for a home down payment, a 401(k) loan might look like a quick and easy solution, especially if you have more money stashed in that account than anywhere else.
Among Americans with retirement accounts, including 401(k)s, the median account value was $65,000, according to the Federal Reserve’s Survey of Consumer Finances, based on the most recently available 2019 data. The median value of transaction accounts, such as savings, checking and money market accounts, was $5,300.
Many employer plans allow 401(k) loans, and the upsides can be attractive: Essentially, you’re borrowing from and paying interest to yourself. The loan generally doesn’t count as debt when lenders calculate your debt-to-income ratio.
But borrowing from retirement savings has downsides, and some financial planners advise against it, period.
“I generally hate the idea of people borrowing from a 401(k) to purchase a home, given the possible risks,” says JP Geisbauer, a certified financial planner and principal of Centerpoint Financial Management in Irvine, California.
Yet Nathaniel Moore, a certified financial planner and president of Agape Planning Partners in Fresno, California, says he understands why someone would be tempted. “If it means going from paying high rent to getting into a place you own, I get it,” he says.
Here’s what to consider if you’re thinking about it.
Rules for borrowing
Most 401(k) plans permit loans, but federal law doesn’t require them to. Log on to the website where you track your 401(k) to find loan information or contact your employer’s human resources department or plan administrator.
Some loan terms vary among employer plans, but all plans must abide by federal rules:
Loans are capped at $50,000 or 50% of the vested account balance, whichever is less — or up to $10,000 if 50% of the vested balance is less than $10,000. If your balance is $200,000, you may be able to borrow up to $50,000. If your vested balance is $70,000, the maximum loan amount would be $35,000.
You have a set amount of time to repay the loan plus interest; otherwise, it will be considered a distribution or withdrawal. You’d pay income tax on a distribution and, if you’re younger than 59 1/2, an additional 10% tax penalty. The plan sets the interest rate, typically 1% or 2% above the prime rate.
Generally, 401(k) loans must be repaid in five years, but a plan can give more time to repay a loan for purchasing a primary home. Payments must be made at least quarterly over the loan term.
If you get fired or quit your job, the plan can require you to repay the full outstanding loan balance. If you can’t pay, the unpaid amount will be subject to taxes and, if you’re under 59 1/2, the 10% tax penalty. You can avoid the tax implications by rolling over the outstanding balance to an IRA or another eligible plan by the next annual federal tax filing deadline. About 4 in 10 Vanguard plans allowed participants to continue repaying loans after leaving their jobs in 2021, according to a 2022 Vanguard report.
Risks of using a 401(k) loan
Even if you’re convinced a 401(k) loan is the way to go, it’s important to understand the risks at the outset.
One is the potential tax burden if you can’t make the quarterly loan payments or leave your job and can’t repay the outstanding balance on time.
You could also fall behind on saving for retirement. Besides losing potential investment gains on the borrowed money, the loan repayments could crimp your ability to contribute to your 401(k). In fact, some plans don’t allow employees to make regular contributions until the loan is paid off, says AnnaMarie Mock, a certified financial planner with Highland Financial Advisors in Wayne, New Jersey. Pausing contributions would be especially costly if you missed out on matching contributions from your employer.
But there’s another less-obvious risk, which Moore finds particularly troubling: Once you’ve taken one loan, it gets easier to tap into it again. “You’re reprogramming your mindset to where now the 401(k), which was designed to be protected and provide income in the future, is accessible,” he says.
Loan costs, repayment and alternatives
Take these steps if you’re thinking about borrowing from your 401(k):
Check your plan’s rules for 401(k) loans
Get details about the interest rate, fees, payment amounts and how long you’d have to repay the loan.
Calculate whether you can afford loan payments
Tally the loan payments along with other obligations.
“That 401(k) loan is going to get taken out of your salary right from the start, so make sure that with the new home expenses, your lifestyle expenses and saving, you’re not operating at a deficit each month,” Mock says. If the loan payments are unaffordable, she says, “the only other place where you’re going to be able to support that lifestyle would be from credit card debt, which is very expensive.”
Learn what happens if you leave your job
If the plan requires paying the outstanding balance in short order — as most plans do — strategize how to repay that sum to avoid tax consequences.
Consider alternatives
Finally, check out other options to help buy a house, such as low-down-payment mortgages and your state’s first-time home buyer programs, Mock advises. Perhaps one of those could eliminate the need for a 401(k) loan.
Some conventional loans have down payments as low as 3%. FHA loans, insured by the Federal Housing Administration, have down payments as low as 3.5%. And if you’re a service member or veteran, you may qualify for a zero-down-payment VA loan backed by the U.S. Department of Veterans Affairs. USDA loans for rural home buyers also don’t require down payments.
Still want a 401(k) loan?
Moore offers these tips:
Take only what you need, which may be less than the maximum you can borrow.
Be aggressive with repayment. Just because you have a certain number of years to repay the loan doesn’t mean you have to use all that time. “Try to pay it back as fast as possible.”
Beware of the tendency to borrow again. “You don’t want to get in the habit of looking at your 401(k) like a piggy bank.”
A home warranty plan is an ideal investment for homeowners looking to protect their purchase and to ensure that every aspect of their home is kept running smoothly and efficiently.
A warranty differs from a homeowners insurance policy, though the two do have similarities.
The latter is usually designed to protect against any theft from the property, as well as damage which occurs as the result of natural causes such as flood, fire, or storms.
A home warranty, on the other hand, attends to the mechanics and appliances which reside within that home, such as plumbing and heating systems, washer, dryers, and stoves.
Sears is one popular option for home warranties, and it may be worth your consideration. In this review, we’ll examine its coverage and cost and weigh the pros and cons of protecting your home with the company.
Home Warranties: Here’s How They Work
A warranty for your home works in a similar way to a traditional home insurance policy.
You pay a certain monthly amount, and in return be covered if an appliance or system requires a replacement or repair.
Most providers will offer a variety of plans which are designed to suit the lifestyle of the policyholder, and Sears is no different.
Who Needs a Home Warranty?
Although home warranties are not compulsory in the same way that home insurance policies can be for some mortgage providers, they are nevertheless a good idea for any homeowner.
Investing in property is a substantial financial commitment, and it is a good idea to protect this investment in the best way you can; by having secure, financial protection and cover.
You also get the peace of mind that things can be repaired and replaced if they go wrong, without costing you an excessive amount.
Sears Home Warranty
Sears Home Warranty is one of the best home warranty companies for a number of reasons. The Sears Home Warranty plan is an ideal way for busy homeowners to ensure every aspect of their home is taken care of in the event of an incident.
Plans
It offers a chance to purchase a single plan, which then serves to protect a range of systems and appliances within the home, no matter how old they are, the manufacturer, or where they were initially purchased.
There is a choice of three plans, allowing you to select the combination most suitable to your needs and lifestyle, and ensuring that you are not spending money on something you do not need.
Filing Claims
In addition, Sears takes the hassle out of finding a suitable repair service, by supplying one as part of the policy.
If you need to make a claim, simply call the customer service line, which is available 24 hours a day, seven days a week.
This means you can report your claim at a time that suits you, as soon as you need assistance, rather than being required to wait for days or weeks for a representative to become available.
Repair
Once this call has been received, the agent will arrange a suitable time for a pre-screened and qualified technician to visit your home and inspect the issue. Once the problem has been identified, Sears will endeavor to repair the malfunction or replace the item where this is not possible.
A service fee will be required when the technician arrives, and the amount you decide to pay at this point could impact your monthly payments; a higher amount will lower them while paying less could increase them.
What Plans Are Available?
Appliance Plan
As the name suggests, the purpose of the appliance plan is to provide cover for essential appliances within your home. It covers items including:
Built-in dishwasher
Washer and dryer
Refrigerator with icemaker
Range, cooktop, stove or oven
Built-in microwave
Trash compactor
Exhaust fan
Systems Plan
The systems plan is the area responsible for covering all the major systems which are present in your home. Key areas include:
Central heating
Water heater
Water softener
Plumbing and plumbing stoppages
Garbage disposal
Toilets and taps
Garage door opener
Ceiling fans
Electrical systems
All the above components come as standard, but policyholders also have the option to purchase add-ons according to their needs. These extras can cover areas such as:
Sump pump
Well pump
Stand-alone freezer
Septic tank and pumping (here, there is a pumping limit of $500 and a tank replacement limit of $1,000)
Pool and/or Spa with a heater (here there is a heater limit of $1,000)
Whole House Plan
A third option is the entire house plan. As the name suggests, this allows the whole home to be protected and covers 21 major appliances and systems for the ultimate peace of mind. Areas covered include:
Garage door opener
Central heating
Plumbing and plumbing stoppages
Water heater
Water softener
Garbage disposal
Faucets
Toilets
Ceiling fans
Electrical systems
Washer
Dryer
Built-in dishwasher
Oven, cooktop or range
Refrigerator – including ice maker
Range exhaust fan
Built-in trash compactor
Built-in microwave
There are also optional extras which can be added on according to your own needs and requirements:
Septic tank with pumping (limit of $500 for pumping, and $1,000 for tank replacement
Stand-alone freezer
Sump pump
Well pump
Pool and spa heater (this has a heater limit of $1,000)
Sears offers a diverse range of plans, allowing homeowners to make the best choice to suit their household.
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Do You Need a Sears Home Warranty Plan?
The decision to take out a plan is a personal one, but it is worth weighing the pros and cons to ensure that your choice is confident and fully informed.
Pros
Comprehensive coverage: You will have a single plan to cover your whole home, so in the event of an incident, there is just one number to call.
Streamlined repairs: There is no need to try and find a repair service at short notice. The technician will be included with your plan, saving time and effort.
Affordability: The monthly repayments are very likely to be cheaper than having to find a replacement or repair for an appliance or system.
Budget-conscious: You will know exactly what you are paying and when, as well as being able to budget for any premiums, as you have all the figures in advance.
Cons
Required services: You are restricted to only using the repair services and technicians provided by your plan. This can be a disadvantage if you have a preferred and trusted option.
Requirements: All goods which are covered must be in full working order at the time the policy is taken out, which means it is no good for quick fixes.
Limited coverage: There are often caps on the amount which can be claimed, and this may leave you out of pocket if you have a particularly expensive system or appliance.
Exclusions: Make sure you know exactly what is covered. Exclusions and exceptions apply to every policy, and it is essential to be adequately informed.
In Conclusion
The Sears home warranty plan offers three diverse options, which can be adapted and changed according to your needs.
Unlike some of its competitors, there is no build your own plan, which is a little disappointing. However, various add-ons can be added to help make the plan more flexible.
A home warranty plan helps to give you more peace of mind and security and protects you from substantial, unexpected financial costs.
It can prove an affordable way to protect your home and property, and be better prepared for any future emergencies!
Whether you’re planning to visit your bank for a routine transaction, open a new bank account, or consult a financial advisor, it’s essential to know when banks are open or closed.
This article provides an overview of bank hours, bank holidays, and what services are available during federal holidays. We’ll also discuss online and mobile banking alternatives that can save you time and offer added convenience.
Factors Affecting Bank Hours
Bank Type: Local, Regional, or National
The operating hours of a bank can vary depending on its size and reach. Generally, local and regional banks have more restricted hours, while national banks may offer extended hours at select branches or have more locations open on weekends.
Geographic Location
Bank hours can vary based on the branch’s location. For instance, banks in urban areas may have longer hours compared to those in rural communities. Furthermore, specific financial institutions may adjust their hours in different regions or cities to better serve their customers.
Online vs. Brick-and-Mortar Branches
While traditional brick-and-mortar bank branches have set operating hours, online banks are accessible 24/7. If you have a bank account with an online bank, you can access your account and perform transactions without worrying about bank hours.
Regulatory Guidelines and Public Holidays
The Federal Reserve System regulates banks in the United States, and its guidelines influence bank hours. Banks usually close on federal holidays to comply with these regulations.
Typical Bank Hours
General Operating Hours for Most Banks
Banks typically open around 9 a.m. and close between 4 p.m. and 6 p.m. from Monday to Friday. Some banks may have extended hours on specific weekdays, opening earlier or closing later to accommodate customers’ needs.
Variation in Hours Among Banks
Different banks may have slightly different operating hours. It’s essential to check your bank’s specific hours, as there may be variations based on the factors mentioned above.
Weekend Hours
Many banks have limited hours on Saturdays, often closing around noon or 1 p.m. However, some banks do not operate on Saturdays at all. Sunday hours are even rarer, with only a few banks open on Sundays, typically in high-traffic areas like shopping centers.
Extended Hours for Select Branches and Services
Some bank branches may offer extended hours for specific services, such as drive-thru teller windows or customer service hotlines.
Federal and State Bank Holidays
Federal Bank Holidays
Banks close on federal holidays, as mandated by the Federal Reserve System. Here’s a list of federal holidays when banks typically close:
New Year’s Day
Martin Luther King Jr. Day
Presidents’ Day
Memorial Day
Independence Day
Labor Day
Columbus Day
Veterans Day
Thanksgiving Day
Christmas Day
If a federal holiday falls on a weekend, banks may close on the preceding Friday or following Monday. For example, if Independence Day falls on a Saturday, banks may close on the preceding Friday.
State-Specific Bank Holidays
In addition to federal holidays, banks may also close on state-specific holidays. It’s essential to check your state’s official holidays to determine if banks close on those days.
How Holidays Affect Bank Hours and Services
Banks may adjust their operating hours around holidays, such as closing early on the day before a holiday or staying closed the day after a holiday. Bank services, such as wire transfers and check clearing, may also be affected by bank holidays.
Online and Mobile Banking Availability
24/7 Access
Online and mobile banking platforms offer 24/7 access to your bank account, allowing you to perform transactions and access essential services even when banks are closed. This convenience means you don’t have to wait for banks to open to manage your finances.
Available Services
With online and mobile banking, you can:
Check account balances
Transfer funds between accounts
Pay bills
Deposit checks via mobile check deposit
Set up account alerts
Apply for loans or open new accounts
Monitor credit scores and reports
Limitations of Digital Banking Services During Bank Holidays
While digital banking platforms are accessible 24/7, some transactions may be delayed due to bank holidays. For example, wire transfers or check-clearing may take longer to process if initiated on a federal holiday or weekend.
Finding Your Bank’s Operating Hours
Bank Websites and Mobile Apps
Bank websites and mobile apps typically display their operating hours and holiday schedules. You can check these resources for accurate information about your bank’s hours.
Google Maps and Search Engine Queries
You can also find bank hours using Google Maps or by searching for your bank’s name along with the specific branch location. Search results often display the bank’s hours and contact information.
Calling the Bank’s Customer Service Line
If you cannot find the information online, you can call your bank’s customer service hotline to inquire about their operating hours and holiday schedule.
Alternatives to Bank Visits
ATMs and Their Services
ATMs are an excellent alternative to visiting a bank branch, as they’re accessible 24/7 and can perform essential services. These machines are typically located near bank branches, inside shopping centers, and at various other convenient locations. Some key services offered by ATMs include:
Cash withdrawals: ATMs allow you to withdraw cash from your bank account, providing quick access to funds when needed.
Deposits: Many ATMs accept cash and check deposits, making it easy to deposit money without having to visit a bank branch.
Balance inquiries: You can check your account balance and recent transactions at an ATM, helping you stay informed about your financial status.
Transfer funds: Some ATMs enable you to transfer funds between your accounts or even to other bank accounts.
Bill payments: Certain ATMs allow you to pay bills directly, such as credit card payments, utility bills, or loan installments.
Peer-to-Peer Payment Apps
Peer-to-peer (P2P) payment apps, such as Venmo, PayPal, and Zelle, allow you to send and receive money quickly without visiting a bank. These apps are especially useful during bank holidays when banks are closed. P2P apps offer several benefits, including:
Instant transfers: P2P apps enable instant money transfers between users, making it easy to send or receive money in real-time.
Mobile convenience: You can use P2P apps on your smartphone or tablet, allowing you to transfer money from anywhere with an internet connection.
Splitting bills: P2P apps make it simple to split expenses with friends, family, or roommates, eliminating the need to deal with cash or checks.
Direct Deposit and Automatic Bill Pay
Setting up direct deposit for your paycheck and automatic bill payments can help you avoid the need to visit a bank, ensuring your transactions are processed on time, even during bank holidays. These services offer several advantages:
Timely transactions: Direct deposit ensures your paycheck is deposited into your bank account on time, while automatic bill payments ensure your bills are paid before their due dates.
Convenience: Once you set up direct deposit and automatic bill pay, you don’t have to worry about visiting a bank branch or mailing checks, saving you time and effort.
Reduced fees: By paying bills on time through automatic bill pay, you can avoid late fees and penalties, potentially saving you money in the long run.
Better budgeting: With regular deposits and bill payments, you can better track your income and expenses, making it easier to manage your finances and budget accordingly.
What to Do if Your Bank Isn’t Open Today
If your bank isn’t open today due to a holiday or other closure, there are still several options available to manage your finances effectively. Here’s what you can do:
Use Online Banking Platforms
Most banks offer online and mobile banking services, allowing you to access your accounts, transfer funds, pay bills, and more, even when the bank is closed.
Visit an ATM for Essential Transactions
ATMs remain accessible 24/7 and provide essential services, such as cash withdrawals, deposits, balance inquiries, and in some cases, bill payments and fund transfers.
Utilize Peer-to-Peer Payment Apps
As mentioned, peer-to-peer payment apps, like Venmo, PayPal, and Zelle, enable quick and easy money transfers between individuals without the need to visit a bank.
Plan Ahead for Time-Sensitive Transactions
If you have a time-sensitive transaction, such as a wire transfer or a loan application, plan ahead and complete the transaction during bank hours or well before the bank closure.
Contact Your Bank’s Customer Service Hotline
If you require assistance and the bank isn’t open, try reaching out to your bank’s customer service hotline. Some banks provide support over the phone or through online chat services even during holidays.
Conclusion
Understanding bank hours, federal holidays, and how they affect banking services can help you plan your financial activities better. While brick-and-mortar banks have set operating hours, online banks offer 24/7 access to your accounts and essential services. By utilizing these resources and alternatives, you can efficiently manage your finances without being restricted by bank hours or holidays.
Frequently Asked Questions (FAQs)
Are banks open on Christmas Eve?
Banks typically operate on Christmas Eve, but their hours may be shortened. It’s a good idea to check with your local branch for their specific hours on Christmas Eve, as they can vary depending on the bank and location.
Are banks open on New Year’s Eve?
Similar to Christmas Eve, banks are usually open on New Year’s Eve but may have shortened hours. It’s best to verify the operating hours of your local branch for New Year’s Eve to avoid any inconvenience.
Are banks open on Easter?
Easter is not a federal holiday in the United States, and most banks typically follow the federal holiday schedule. However, since Easter always falls on a Sunday, banks are generally closed, as most bank branches do not operate on Sundays.
Can I still use ATMs during bank holidays?
Yes, ATMs are available 24/7, even on bank holidays. You can use them for cash withdrawals, deposits, balance inquiries, and other essential services. However, keep in mind that some transactions, such as check deposits, may take longer to process due to the holiday.
Do bank holidays affect direct deposit?
Bank holidays can impact the processing of direct deposit transactions. If your payday falls on a bank holiday, it’s possible that your funds will be deposited on the preceding business day or the following business day. Check with your employer and bank to understand their policies regarding direct deposit and bank holidays.
What happens if a bank holiday falls on a weekend?
When a federal bank holiday falls on a weekend, banks usually observe the holiday on the preceding Friday (if the holiday falls on a Saturday) or the following Monday (if the holiday falls on a Sunday). Check your bank’s holiday schedule to confirm their specific observance dates.
Dependable Home Warranty was founded in California in 1974. When they became a subsidiary of Old Republic International in 1982, they continued to provide reliable coverage to all of their customers.
They have since earned a spot among the top three home warranty companies in the country with an A+ rating from the Better Business Bureau.
Old Republic offers efficient and friendly service with comprehensive plans and straightforward pricing.
Their goal is to be a long-time service provider for your household by building a relationship with your family and earning your trust.
Old Republic Home Protection Review: Main Features
Table of Contents
Old Republic offers many ways to protect your investment by covering common home repairs to help keep your house safe and sound.
With Old Republic, you can expect to find a variety of plans tailored to meet your coverage needs. Across plans, there are a number of features that stand out.
The following are some of our favorite Old Republic coverage features included in all plans, features which put it on our list of top home warranty companies.
Heating System
Heating units not exceeding five tons are covered under all of Old Republic’s warranty plans, and they don’t limit the number of units you can cover.
Most companies only allow coverage for one unit, and you have to pay extra for additional units, so this is a really excellent coverage option.
If you have multiple heating units in a large house or you have an outbuilding you use for your hobbies and projects, this coverage provides you with a great solution. Heating system coverage includes parts like the heat pump, ducts, thermostat, floor heater, and drain pumps.
Plumbing System
When a part of your plumbing isn’t working, it can disrupt your entire routine from dishes to showers to bathroom breaks.
Old Republic’s plumbing system coverage includes the following:
Drain line stoppages
Toilet tanks
Pipe leaks
clogs/leaks: in your water heater, water dispenser, garbage disposal, sump pump, and water pressure regulator parts
Electrical System
You use your electrical system for almost every part of your day. Making toast for breakfast, watching TV in the afternoon, and playing games with your kids in the evening all require electricity.
To keep the lights on, Old Republic covers your outlets, switches, panels, breakers, wiring, fuses, fans, and more.
If something goes wrong with your electrical system, they’ll restore power quickly so you can keep moving.
Home Appliances
Old Republic covers home appliances like your oven, cooktop, range, dishwasher, exhaust fan, built-in microwave, and trash compactor.
Every component of these systems is included in the event you experience normal wear and tear or an unexpected outage.
With this coverage, you can keep your kitchen in proper working order to cook meals, do dishes, or gather with family and friends.
Old Republic Warranty Plans
Old Republic offers customizable warranty plans based on location. While there’s not a standard set of plans for you to preview, Old Republic has brochures available that detail the specific coverage in your area.
Old Republic offers location-based plans to provide better coverage based on common problems in your region.
For instance, you won’t pay for air conditioning coverage when your home doesn’t have an air conditioner.
They can provide superior options and more valuable service by segmenting their warranty plans this way. Experts servicing your location will be more knowledgeable about the problems you encounter and be able to fix them more quickly.
The Good – Old Republic Home Protection
Old Republic offers some benefits in addition to their exceptional features, giving you not only great coverage but fantastic conveniences that make your life easier. Here are just a few of our favorites.
Easy Quotes
You don’t have to call Old Republic to request a quote, and you won’t be hassled by their representatives.
They provide online brochures listing the coverage options in your area so you can do the research on your own and find what’s right for you.
The quoted estimate is highly accurate and lists the service call fee along with the warranty plan price.
Online Claims
Most of your home warranty claims can be handled online, adding convenience to the process. If you find faulty wiring in the basement and you can live without spending time in that space for a few days, the online option is easy to use and eliminates the need for you to pick up the phone.
You should always call instead of filing a claim online in the event of an emergency or if you need to make multiple requests like bringing up previous services or getting the status of an existing claim.
Great Reputation
Old Republic prides themselves on having an outstanding reputation, and they do everything they can to maintain it. They’re reliable, professional, and competent.
The company lists their values online so you can always see how important it is to them to provide you with the best possible service.
They value honesty, and they are always open with their customers. With this kind of transparency, you can rest assured they’ll do whatever they can to give you the best service at the best prices.
Online Resources
Old Republic’s website includes a number of educational tools that can help you make an informed home warranty purchase.
With a blog full of home improvement tips, real estate marketing tools, information about home warranties, and more, you’ll be able to find what you need quickly.
The FAQ page includes answers to the questions that customers ask Old Republic most frequently, so when you’re on the hunt for more information about the company or their plans, it’s all right there.
Real Estate Professional Options
For real estate professionals who prefer to add perks to their sales, Old Republic has packages just for you.
You can cover all of the homes you sell with a fantastic starter warranty, enticing your buyers and giving you an edge.
These plans include extensive tools like customizable e-cards and newsletters, open house kits, and other marketing items.
The Bad – Old Republic Home Protection
As with anything you buy, Old Republic has some downsides, none of which are too significant.
Coverage Areas
They don’t provide nationwide service, so their warranty plans aren’t available everywhere.
However, Old Republic has chosen to focus on areas where they feel they can offer the best value, so in the areas where service is available, it’s the best service you can get.
Customer Support
Old Republic doesn’t offer email or online support. Sometimes the most convenient thing you can do is hop online and chat with someone if you have a quick question.
Support Options Limited
The lack of online support forces you to call in a situation where it would typically be simpler to chat.
However, they do have phone representatives, and their online help section is more comprehensive than many other providers. They have an extensive FAQ section as well as a blog that provides even more advice and answers.
Pros
Cons
Comprehensive Coverage
Old Republic Home Protection offers a wide range of coverage options, including for major appliances, systems, and optional add-ons such as pool and spa coverage.
Ease of Use
Old Republic Home Protection makes it easy to request service and track claims online or through their mobile app. They also have a network of pre-screened contractors to provide service.
Strong Reputation
Old Republic Home Protection has been in business for over 45 years and has a strong reputation for customer service and claims handling.
Customizable Plans
Old Republic Home Protection offers a variety of plans and optional add-ons, allowing customers to tailor their coverage to their specific needs and budget.
Alternatives to Old Republic
Old Republic is one of several great home warranty companies. Take a look at the top alternatives below to decide which provider is best for you.
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The Bottom Line – Old Republic Home Insurance Review
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While Old Republic doesn’t have online chat support or coverage in all areas, they do have a fabulous reputation for being honest and upfront with customers.
Their integrity standards are some of the best in the business, giving you peace of mind that your warranty coverage will be honored.
Their quotes are easy to find without having to reach out to a representative, they have a no-pressure sales process, and they offer location-specific coverage for more comprehensive plans and solutions.
When it comes to home warranty coverage, Old Republic provides excellent options for all of your home warranty needs.
FAQs – Old Republic Home Insurance
What does Old Republic Home Protection cover?
Old Republic Home Protection offers a range of coverage options, including for major appliances, heating and cooling systems, plumbing, and electrical systems. Optional add-ons, such as pool and spa coverage, are also available.
How does Old Republic Home Protection work?
If a covered item in your home breaks down, you can file a claim with Old Republic Home Protection either online or over the phone. Old Republic will then send a pre-screened contractor to your home to assess the problem and perform any necessary repairs.
How long does a contract with Old Republic Home Protection last?
Old Republic Home Protection requires a one-year contract. The contract automatically renews each year unless canceled.
Product Description: Old Republic Home Protection is a home warranty company that offers coverage for home systems and appliances.
Summary of Old Republic Home Protection
Old Republic Home Protection is a home warranty service that offers coverage for major repairs and replacements for important home systems and appliances. It provides coverage for items such as heating and cooling systems, plumbing, electrical, water heaters, and more. The company also offers additional services such as repair scheduling, 24/7 emergency service, online account management, and an annual maintenance plan.
Cost and Fees
Customer Service
User Experience
Product Offerings
Overall
3.9
Pros
Predictable Coverage: A one-year contract with automatic renewal means that homeowners can count on having coverage for a set period of time without having to worry about renewing the contract themselves.
Continuous Coverage: Automatic renewal ensures that there is no gap in coverage, which is especially important for homeowners who rely on their home systems and appliances.
Budgeting: With a one-year contract, homeowners can budget for the cost of the home warranty and plan accordingly for the renewal.
Cons
Long-Term Commitment: A one-year contract means that homeowners are locked into the service for a set period of time, even if they are dissatisfied with the coverage or service provided.
Cancellation Restrictions: Cancelling the contract before the end of the term may result in penalties or fees, depending on the terms of the contract.
Automatic Renewal: Automatic renewal means that the contract will renew automatically unless cancelled, which may catch some homeowners off-guard if they forget to cancel before the renewal date.
Home warranty services like Advanced Home Warranty offer to shield you from unexpected repair bills in exchange for $400 to $600 a year plus service fees.
You could sign up within minutes online and have coverage in place after a 30-day waiting period.
But do you really need to?
Would the warranty protect you from out-of-control expenses or would it be just another bill to worry about?
Could you find another way to pay for repairs?
To answer these questions with any certainty, you’d need to know the future, and we can’t help with that. You’ll have to settle for the next best thing: Studying the warranty to find out how it works and how it might (or might not) help you.
About Advanced Home Warranty
Advanced Home Warranty hasn’t been around very long, but its sister company, Choice Home Warranty, has provided warranties for decades. The companies offer very similar warranty plans.
Both companies offer lower-priced options compared to other warranty companies. You can save on premiums and service call fees.
You can also save by opting only for coverage on the systems you need, within certain parameters.
Advanced Home Warranty does not let you build your own customized warranty, but its plan structure lends itself to some customization.
Advanced Home Warranty’s Basic Plan
Advanced’s Basic option will cover the fundamental systems in your home with a couple of notable exceptions. The plan covers:
Cooktop
Ceiling and exhaust fans
Dishwasher
Ductwork
Oven / range / stove
Heating system
Electrical system
Plumbing system
Plumbing stoppages
Water heater
Whirlpool bathtub
Built-in microwave
Garbage disposal
Garage door opener
The Basic plan is a bargain at about $400 a year. But it does not cover your refrigerator, your clothes washer and dryer, or your air conditioner.
If you don’t need coverage for these systems, you could save with Advanced’s Basic Plan. If you do need this coverage, you’ll need the Total Plan.
Advanced Home Warranty’s Total Plan
The Total Plan includes everything in the Basic plan, along with your:
Air conditioner
Refrigerator
Clothes washer/dryer
The Total Plan starts around $550 a year.
Optional Coverage: Add Flexibility
With either the Basic or Total Plan, you could add coverage as needed in any combination to protect your:
Each of these add-ons could cost between $20 and $50 extra a year. This flexibility allows you to include only the coverage you need without paying to protect a system you don’t even have.
When warranties bundle more coverage together, you’re more likely to pay for services you don’t need, like a central vacuum system when all you have is an old upright Hoover, or a sump pump when your home is built on a concrete slab.
How Advanced Home Warranty Works
Advanced Home Warranty gets high marks for giving you more control over how you build your warranty coverage.
But we’re still in the hypothetical phase of the shopping process. How would this translate if you bought a plan that meets your specific needs?
Filing a Warranty Claim
You can buy a warranty on your home right now without needing a home inspection or any documentation. Unless your home exceeds 5,000 square feet, you’ll get a standard pricing plan based on your ZIP code.
Like most warranties, you’d have to wait 30 days after signing the contract before you can file a claim with Advanced Home. After your 30-day waiting period, you could call the company’s toll-free service number 24 hours a day.
Paying Your Service Fee
Assuming your warranty covers your faulty system, the company will send out a technician within two days (four days on weekends or holidays).
The technician will charge you $60 to diagnose the problem. Service fee amounts vary between warranty companies, but charging this fee is standard practice. It works like a deductible on your homeowners insurance policy or a co-pay on your health insurance.
The technician will either:
Fix the problem for no additional charge: This is the best case scenario, and if this happens you’ll feel good about your decision to buy the warranty.
Have a more specialized contractor come out: You’re still getting the problem fixed, but it’ll take a little longer.
Recommend replacing the system: As long as a replacement falls within your warranty’s annual spending caps, which we’ll get into below, you can get the system replaced at no charge.
Inform you the warranty won’t fix your problem: This can be infuriating after you’ve already paid the premiums and the service fee. Prevent this scenario by reading the contract carefully before signing.
Your Contract’s Exclusions
Any home warranty comes with some exclusions which could deny coverage even to a covered system in your home.
Many new homeowners who buy a warranty feel surprised when the warranty denies their claims. Advanced Home Warranty’s sample contract spells out the exclusions, which are far too numerous to list here.
Exclusions include:
For a refrigerator: Advanced won’t fix racks, shelves, lighting problems, ice makers, Freon, ice crushers, beverage dispensers, door hinges and gaskets, glass, Internet-connected features, spoiled food.
For a clothes washer: The warranty won’t fix problems with door seals, filter screens, leveling and balancing, glass, soap dispensers, knobs and dials, hinges, damage to clothing.
For an air conditioner: The warranty won’t cover condenser casings, electronic air cleaners, filters, humidifiers, gas air conditioning systems, registers and grills, non-ducted wall units, window units, water towers, improperly sized units, chillers, roof mounts, jacks, stands or supports, commercial grade equipment — this list goes on and on.
Electrical system: The warranty won’t help with alarm systems, attic or exhaust fans, DC wiring, doorbells, fixtures, CO2 alarms, smoke detectors, inadequate wiring capacity, solar power panels or components, running new wires, damage due to power failure or surge. Again, this isn’t all.
The list of exclusions goes on for page after page, but the sampling above should show you the importance of checking the contract thoroughly before signing.
Annual Spending Caps
Your warranty’s contract should also tell you the maximum amount your warranty would pay each year. If your repair exceeds the spending cap, you’ll have to make up the difference out of pocket.
Most warranties have a comprehensive cap and/or a per-system cap.
Here’s a sampling of Advanced Home Warranty’s spending caps:
Heating system: $1,500 per year.
Electrical system: $500 per year.
Plumbing system: $500 per year.
Ductwork: $500 per year.
Other Reasons for Non-Payment
Advanced Home Warranty will provide details in your contract about several other conditions which could prevent the company from paying to fix your system.
For example, the warranty won’t pay for damage resulting from:
Known or unknown pre-existing conditions
Rust or corrosion
Mildew or mold
Sedentary build-up
Also, expect to cover the cost out of pocket for cutting through concrete or walls to access damaged systems. The company also won’t pay to repair cosmetic damage resulting from this kind of repair.
Alternatives to Advanced Home Warranty
Take a look at some of Advanced Home Warranty’s top competitors to ensure you get one of the best home warranties to protect your home.
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Should You Get a Home Warranty?
At this point, many shoppers ask themselves, “Why even bother with a warranty? Why would anyone pay into a plan with so many exclusions?”
These are good questions. Yet thousands of homeowners buy warranty coverage every year because they like the idea of paying about $500 a year in exchange for a few thousand dollars worth of home repairs.
The key is knowing how to use a warranty: The warranty should repair or replace home systems that wear out from normal wear and tear.
A warranty won’t fix a system which faltered because of misuse, over-use, lack of regular maintenance, or improper installation. A warranty also won’t help with cosmetic issues or personal preferences. It won’t pay for maintenance, inspections, or to get your system up to code.
Warranties vs. Homeowners Insurance
Sometimes your homeowners insurance policy could help you repair system damage that a home warranty will exclude. If lightning strikes your home and fries the electrical panel, for instance, your warranty won’t pay but your homeowners policy should.
It’s easy to confuse these two sources of help. Basically, a warranty can help when a system in your home wears out from normal use. Your insurance should help when an outside force — wind, hail, lightning, a tree, a burglar, or fire — damages or destroys your property.
Understanding this difference can help place a home warranty in context.
Who Needs a Home Warranty?
Whether a home warranty makes sense for you depends partly on your home. In a home where systems will be less likely to wear out, a warranty makes less sense.
In a brand-new construction, for example, you’re less likely to need work on your electrical system or your plumbing system. Something could go wrong, of course, but statistically speaking, you’re less likely to face high repair bills than someone in a 35-year-old home.
However, if you bring your older refrigerator and clothes washer into your new home, those systems will be more likely to need repairs this year. Your warranty should reflect this reality.
Reasons Not To Get a Home Warranty
Along with the condition of your home, your overall financial situation can also help you decide whether to buy into a plan like the one Advanced Home Warranty provides.
If you have several vulnerable systems in your home and you have no idea where you’d come up with a couple thousand dollars if needed, a home warranty could be useful. I’m assuming, of course, the $400 to $600 in premiums wouldn’t be too much of a hardship.
If you have money saved or you have another plan for coming up with repair money, such as a low-interest line of credit, you could rely less on the protection of a warranty.
Also, if you know how to fix just about anything in your home, you’d probably be OK without a warranty. You’ll still need to save some money for parts, perhaps, but you’d have less need for a technician to come out and assess your ailing system.
Bottom Line: Follow the Rules
Home warranty companies like Advanced Home Warranty provide a concrete service: home system repairs.
But they tend to sell customers on an abstract concept: a sense of security.
This sales pitch taps into your sense of fear as you enter homeownership. The pitch gives you an action to take (buying a warranty) to ease your fears of out-of-control repair bills.
To make the best decision as a consumer, you have to look beyond this sales pitch to see exactly how the warranty would (and when it wouldn’t) help you. These four rules can help:
Understand What You’re Buying: We call these plans “home warranties,” but they hardly resemble a manufacturer’s warranty which will replace your phone or food processor. Instead, you’re buying a service contract which doesn’t come with very many guarantees. It can offer convenience and it should help replace or repair worn out systems.
Read The Contract: Read and understand every word of your actual contract before you sign it. A sample contract like the one Advanced Home Warranty provides on its site will give you a good idea how the company works. But it’s not the same as the contract you’ll need to sign. If you don’t understand a clause, call customer service. If the rep can’t help you understand, consider moving on to another company.
Customize Your Coverage: Advanced Home Warranty allows for more warranty customization than many companies. Try to avoid paying for coverage you couldn’t possibly use. Sometimes you’ll have to include a system or two you don’t need, but often you can create a customized plan.
Have a Backup Plan: But wait, you might say, the warranty is my backup plan. Since warranties have so many limitations on service, you should still set aside some money for home system repairs. This can also help if your repair exceeds your warranty’s annual spending cap.
No, you can’t see the future and know for certain whether a warranty could save you money in the coming year. But learning as much as you can about Advanced Home Warranty in the present should help you avoid a lot of future frustration.
One reason that it’s so difficult to keep up with Medicare is that it’s constantly changing. The government is always adding or taking away restrictions on health care. Not only does Medicare coverage continue to change, but supplemental insurance continues to cover as well.
Medicare is an excellent government program, and it help provide health care coverage to millions of seniors across the nation, but it doesn’t cover everything. In fact, there are a dozen different expense categories that Medicare Parts A and B don’t cover. Those expenses could leave you with massive medical bills and hospital fees.
Those massive bills could turn your retirement dream into a nightmare. It’s important that you get the health care coverage that you need to ensure that you aren’t responsible for hospital bills that would drain your bank account.
Every year, I get a lot of questions about Medigap Plan J, which is no longer available. It’s important that you understand all of the plans, and if you have a Plan J, you will need to understand your coverage and some other similar options.
What is a Medicare Supplemental Plan J?
Medigap plans are sold by private insurance companies, and they work together with your original Medicare Parts A and B to give you additional coverage that you wouldn’t get with just your traditional coverage. There are ten different supplemental plans that you can choose from, all of them are going to have different coverages and gaps that they fill.
Some plans are going to be more basic than others. A Medigap Plan A is going to be one of the most basic, and it’s going to leave more gaps in coverage than other plans, like supplemental Plan F, which is the most comprehensive policy.
Plan J was one of the most popular options for Medigap coverage because of the additional insurance protection that it provided to enrollees. If you have a Plan J still, then you have the most coverage that you can buy. In fact, the law no longer allows you to get some of the coverage.
With your Plan J, you will get the basic coverage categories, like Part A coinsurance and hospital costs for an additional 365 days after your original Medicare coverage has expired. If you’ve ever stayed the night in a hospital for whatever reason, you know that it can be an expensive stay. With traditional Medicare, you will get some hospital fee coverage, but after that coverage ends, you’ll be responsible for all of those bills out-of-pocket. With a Medicare Plan J (or any supplemental plan for that matter), you will get additional coverage that can protect your savings if you’re ever in the hospital for several weeks.
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Some of the additional coverage that came with a Plan J was paying the Part A and B deductible. The deductible is the amount that you have to reach before your Medicare coverage kicks in. If you had a Plan J, then you wouldn’t be responsible for paying that bill. Every year, the Part B deductible changes. In 2017, this threshold is $183.
Plan J would also pay for any Part B excess charges. When you go to the doctor or hospital to get any service, there is a pre-determined amount that Medicare B will pay. The doctor is legally allowed to charge 15% more than that amount. Anything about that pre-determined amount is considered excess charges. If you don’t have supplemental coverage, you will have to pay for all of those excess bills out of your pocket.
One of the unique coverage categories of Plan J was the prescription coverage that it provided. Plan J will help cover some of the rising costs of medications. The prescription coverage was one of the main reasons that Plan J was so popular.
What Happened to Medigap Plan J?
As I’ve already mentioned, Medigap Plan J is no longer available. There were several changes in the early 2000s that make these plans unavailable for new enrollees. Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act, which changed the way that Medicare was structured. When this act was completed, the started Medicare Part D prescription drug coverage.
Once Part D began, it meant that Plan J was providing duplicated coverage, and that Plan J was now obsolete. The new law made it illegal for any supplemental coverage to pay for medication expenses, which meant like Plan J was identical to Plan F, and there was no reason for having two identical plans. If you held a Plan J at that point, you could keep your supplemental coverage, and you weren’t required to switch policies.
After that point, nobody else was able to enroll in Plan J, but there were several other quality options that you could choose from. It’s vital that you get the perfect supplemental insurance for your health care needs.
Alternatives
The obvious alternative to Plan J is to purchase a Plan F. The plans are identical minus the prescription coverage that Plan J is no longer allow to give to its enrollees. Plan F will give you all of the comprehensive coverage that the other plans won’t provide. If you want to get the most coverage possible, then a Plan F is going to be the best choice.
On the other hand, if you decide that you don’t want as much coverage, and you would rather save money, then a smaller plan is going to be a much better option. A Medigap Plan A or B will fill in a few of the gaps that Medicare doesn’t pay for. With a smaller plan, you won’t get as much additional coverage, but you are going to save money every month.
Deciding Which Plan
There are several different factors that you will need to consider when you’re shopping for supplemental insurance coverage. The first factor that you will need to look at is your finances. Everyone would love to have a Plan F which gives the most coverage, but not everyone can afford that comprehensive plan. Before you purchase any additional coverage, take a look at your budget and decide how much you can spend every month on that supplemental protection. The goal of your Medigap policy is to protect your savings, but the plan shouldn’t break your bank every month.
The next factor that you need to answer is your medical history and your family tree. The older that you get, the more that you’re going to spend on health care, and those expenses could drain your savings account, but that’s where your Medigap plan comes in. If you’re in poor health, then you will need to purchase a comprehensive policy that gives you the most coverage possible.
Medigap Open Enrollment
One of the most important things to realize about Medigap plans is when you should purchase one of these plans. Once the month that you turn 65 begins, your Medigap Open Enrollment Period begins. During this time, the insurance company can’t decline your application, regardless of your health or any health complications that you may have. If you’re in terrible health, this could be the only chance that you have to get coverage.
Additionally, if you apply during the open enrollment, the company can’t increase your premiums, even if you have health complications. If you want to save money, it’s vital that you apply during the six-month window of open enrollment. After the six months is over, then your application will be treated as a normal application, which means that you could get drastically higher premiums.
Any Questions about Medigap Plan J?
Because Plan J is no longer available, I don’t get a lot of questions about the plan, but there are still people with these plans. It’s vital that you get the perfect supplemental coverage. You’ve worked hard to reach this stage of life, don’t let medical bills wreck your retirement dream.
If you have any questions about Medigap Plan J or any of the alternatives, please contact an experienced Medicare supplemental insurance agent or me today.
If you’re thinking about buying a home warranty, you may be considering First American Home Warranty, a leader in the industry.
Home warranties like First American’s can feel like a gamble. Will the warranty pay when you need it to? Or will you find out the hard way your warranty doesn’t cover the repair you need?
You may not know unless you comb through a warranty contract line by line looking for exceptions, conditions, and requirements of you, the homeowner. So let’s take a close look at First American Home Warranty.
About First American Home Warranty
First American Home Warranty has been in business for more than 35 years and currently serves about 450,000 clients in 38 states.
That’s a substantial amount of customers and a wide range of coverage. Paired with more than three decades of service, the numbers speak highly for First American’s reputation. It’s one of the leading home warranty companies today.
But you also need to assess the terms of their home warranty policies and the types of claims they actually cover to make an informed decision.
Let’s go through the company’s warranties element by element:
What Does First American Home Warranty Cover?
First American has two plan categories: Basic and Premier. Any prices quoted in this section could change without notice.
First American typically raises its premiums every few years. The company sells annual contracts but allows monthly payments.
Basic Plan
The Basic Plan ($28 a month) covers:
Refrigerator
Dishwasher
Range/oven or cooktop
Microwave
Garbage Disposer
Trash compactor
Washer and dryer
Premier Plan
The Premier Plan ($44.50 a month) covers everything in the Basic Plan, plus:
Electrical system
Plumbing system
Water heater
Central heating
Garage door opener
Ductwork
Central vacuum system
Upgrades
Additional available upgrades to either plan include:
Air conditioning service ($9 extra per month)
Coverage for additional refrigerators ($4 extra per month)
Pool and pool equipment ($15 extra per month)
Well and well pump ($9 extra per month)
How Much Will First American Home Warranty Pay?
To understand how much a warranty could pay, you have to consider payout caps and service fees.
When you contact your warranty company for service, the company will typically send out a technician to assess the situation. You’ll pay a service fee for this initial step, and you can think of the fee as a deductible.
With First American Home Warranty, the fee is $75 in most states, but it could be as high as $100. We looked at a contract from Texas, where customers currently would pay $75 per visit from a technician.
Assuming the repair or replacement you need will be covered by the warranty, your next concern will be the warranty’s payout cap. Again, these can vary from state to state.
Expense Caps
The contract for Texas is fairly typical for First American, and it caps payouts like this:
Plumbing: $500 maximum per year for repairs to the pipes in your home.
Water heater: $1,500 maximum per year, excluding flues and vents and fuel storage areas.
Kitchen appliances: Limited to $3,500 per covered appliance.
Heating system: Limited to $1,500 per year.
Central air conditioning (optional add-on): limited to $1,500 per year.
Other systems in the First American Home Warranty contract do not cap expenses, but they have specific limits on what parts of the system the warranty will repair or replace.
Limitations
In these cases, the fine print can go on for a while, so the following lists aren’t all-inclusive. If you’d like to fully assess the details of a contract, you’ll need to go through the quote process and ask for a sample contract.
The following examples should give you a better idea what to look for when you’re investigating a contract’s limitations:
Electrical system: No expense cap, but the plan won’t pay for door bells, alarm systems, intercoms, audio or video recording devices, damages due to power surges or inadequate wiring capacity.
Garage door openers: No expense cap, but the plan won’t pay for remote controllers, gate motors, hinges and springs, side rails.
Laundry appliances: No expense cap, but the plan won’t pay for repairs to filter and lint screens, knobs and dials, venting, or damage to clothing.
These limitations are typical for a home warranty, and you’ll want to study the details carefully before signing up. If you think the contract won’t provide services you anticipate needing, don’t sign the contract.
Filing Warranty Claims
You will have to wait 30 days after signing the First American warranty contract before you’re eligible to file a claim.
After the waiting period, you can contact First American’s customer service staff any time of the day or night, either via phone or online to start a claim.
How to File a Claim
Starting the claims process online has the advantage of documenting your claim from the outset in case you need to dispute the company’s decision later.
If the customer service staff is certain your problem won’t be covered, the claims process can end immediately. But in most cases, the company will send out a home repair technician who will charge you the service fee we discussed earlier. The service charge is typically $75.
After you pay the service fee, the warranty’s technician should fix or arrange a replacement at no charge, up to the annual limits of the warranty. At this point, your warranty will either seem like a great idea or a waste of money, depending on the outcome of your claim.
Often, when a warranty does not pay a claim, the homeowner feels cheated, and understandably so. However, warranty companies like First American generally do not breach their own contracts, so knowing the intricacies of your contract can help you dispute an unpaid claim.
Common Reasons for Claims Denials
Here are some common and legitimate reasons a warranty could deny your claim for service:
System not covered: When you buy a warranty and then renew it a couple of times, it’s easier than you might think to forget what coverage you bought, especially if your real estate agent helped purchase the initial warranty. A Basic Plan from American Home won’t cover your plumbing, for example, so if you filed a claim to fix a frozen pipe, you’d get an automatic denial. I know this is kind of like asking whether your computer’s plugged in when you call tech support. But there’s a reason people ask.
Bill not paid: Sometimes customers fall behind on their monthly bills and decide to skip a few warranty payments. If that happens and you need to file a claim, you’re giving the warranty company a reason to deny service.
Contract caps met: American Home has more relaxed payout maximums than most other companies, but on many systems, the company still sets an annual maximum. This makes sense: A company wouldn’t stay in business if it regularly paid out more than you’re paying in premiums.
Maintenance standards not met: Again, American Home’s standards aren’t as high as many other companies, some of which require proof you’ve performed regular maintenance on your covered systems in order to get coverage. American Home will often require regular maintenance on larger items such as your central heat and air (if you opt into AC coverage). The company typically doesn’t require its own initial home inspection before you sign the contract.
How to Avoid Denied Claims
Getting a claim denial can be infuriating. You feel cheated, and you still have to figure out how to pay for the repair you need. Reading your contract carefully, line by line, will help you know whether the warranty provider is living up to its agreement or whether you should file a claim.
Believe it or not, a denial may not be the worst experience you can have with a warranty company. You could get approved for service only to experience delays in service making you feel stuck in-between.
Or, you could get stuck in another in-between: a repair you’re not happy with that the warranty company insists has been completed.
Who Will First American Send to Help?
First American has its own staff of home repair technicians. If the company’s technicians need more expert help, they can bring in specialists of their choosing. Customers have little control over who comes out to repair your home system.
Although First American serves nearly half a million customers around the country, the company usually sends technicians from your general area.
This reduces waiting times, and it also helps the company adhere to your local codes.
However, the company will not send help specifically to get a system up to code. A warranty exists to replace or repair systems in your home, not to maintain them.
Grading First American Home Warranty
If you’re trying to decide whether to buy a warranty from First American Home Warranty, you’ll quickly discover it’s a tough question to answer.
First American Pros
Simple contracts: Compared to many other companies, First American’s contracts can be easier to understand.
Lower premiums: The company is on the lower end of the cost spectrum.
Complaint resolution: The company has the customer service staff in place to help resolve customer complaints.
Reasonable caps: On the surface, none of First American’s annual caps on repairs seem prohibitively low.
First American Cons
Lack of clarity: Though the contracts are easy to understand, they don’t always answer every question you may have. You may need to call for clarification.
Lack of flexibility: Some warranties allow you to customize your coverage to meet your home’s needs. For example, you could pick 10 systems to cover. First American offers only specific coverage plans.
Closed service network: First American sends its own specialists and technicians, meaning you have less control over the repair process.
What Customers Say
In many ways, the First American’s customer service rates better than other warranty companies:
The Better Business Bureau gives the company a B+.
TrustPilot, which compiles customer reviews, give it 4 out of 5 stars.
These ratings result, in part, from First American’s commitment to dealing with complaints. But, individual customer reviews tell a different tale. Customers express frustration, annoyance, and disgust in review after review.
Of course, customer reviews tend to lean toward the negative. Happy customers are generally less compelled to share their feelings online. Still, this preponderance of frustration can’t be simply ignored.
Truth be told, it’s unfair to single out First American. Just about any home warranty company can inspire these feelings when the warranty doesn’t pay as the customer expected.
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Do You Need a Home Warranty?
A warranty works kind of like home insurance, but instead of protecting you against loss of value from disasters such as fires and hurricanes, a warranty can shield you from out-of-control home repair costs.
When to Avoid a Home Warranty
You have a healthy savings account: When you could afford to repair or replace major appliances or home systems if needed, you could have less need for a warranty.
You can borrow money easily: When you have great credit and a low debt-to-income ratio, you can usually find no-interest loan offers for big repairs like HVAC systems or electrical wiring repairs.
You have a brand new home: The protection a warranty can provide makes the most sense with older homes which could require expensive repairs at any point.
You have other protections in place: Maybe most of your home’s systems already have manufacturer’s warranties or service contracts from the installation company.
You’re good at fixing things: Some people have the gift of fixing just about anything that breaks, meaning they’d be on the hook only for parts and their own time.
If any of the above scenarios describes your life, you could possibly get by without buying a warranty.
When to Buy a Home Warranty
On the other hand, if the following conditions describe your home and your financial life, you may want to consider a warranty more seriously:
Several major systems in your home are old: An HVAC system will typically last 20 to 25 years. Smaller systems such as dishwashers, clothes washers and dryers, garage door openers, and stoves may last a decade or so. If you buy an older home with aging systems, a warranty can seem more appealing.
Your mortgage payment stretches your budget: If your house payment already takes 35 percent or more of your monthly income, a huge repair bill could spell financial disaster. A warranty may seem like a sensible precaution.
You don’t have much in savings or solid credit: If you couldn’t spend or borrow your way out of a tight spot, a warranty can provide some extra peace of mind.
Someone with all of these limitations may be the most ideal candidate for a home warranty. But someone with a tight budget also has the most to lose by getting a warranty that doesn’t pay.
Bottom Line
Here’s the number one rule if you’re shopping for a home warranty: Read and understand every last word of the contract before signing up.
If you don’t understand part of the contract, get in touch with the company’s customer service staff to get answers to your questions.
Becoming an expert on your warranty’s contract will help prevent you from being surprised when the warranty won’t cover a repair you need.
Becoming an expert on the contract can also prevent you from buying a plan that doesn’t meet your home’s specific needs.
Home warranties like First American sell peace of mind. It’s up to you to find out whether the warranty would actually provide it.