First time homebuyers are often confused about the differences in a home warranty and home insurance. After all, they both protect your home and they sound similar enough. However, these policies are completely different. Here’s how each one works.
One huge difference is that unlike a home warranty, lenders require home insurance. A home insurance policy protects against damage or loss caused by natural acts such as wind, hail, fallen trees as well as loss from fire and theft. Obviously, the lender has a financial interest in the home and will therefore require a home insurance policy in place as part of closing.
Home insurance policies will also have deductibles, generally chosen by the homeowner. The premiums are often rolled into closing costs and some lenders will require that the policy premiums are paid by them, with the cost then incorporated into the monthly mortgage payments.
Home insurance policies differ in coverage and price.The policy coverage includes both the physical structure of the property as well as the homeowner’s belongings within the house. The specific coverages and deductibles will vary by company and region. For example, many policies cover damage caused by storms but would not cover loss from “Acts of God” (floods, earthquakes, hurricanes). It’s important to check with multiple agents about policy coverage and exclusions.
A home warranty is NOT required by lenders. These policies do not protect the house itself or personal possessions. Rather, home warranty policies cover specific systems and appliances under a service contract. This typically includes heat and air units, plumbing, dishwashers, stoves, sump pumps, exhaust fans, and water heaters.
These policies are generally fairly inexpensive and are purchased prior to closing by the home buyer. Some times a REALTOR or home seller will offer to purchase a home warranty as part of the closing.
Sometimes homeowners can find home warranty policies do not meet their expectations. They are not exactly all-inclusive. Plus, when something happens to an appliance or system, the home warranty company will have a set list of contractors that can be used. These contractors will come to repair or replace parts, but rarely replace an entire appliance or system.
Bottom line: Home insurance is required and a home warranty is not. In either case, be sure to ask questions and read the fine print before purchasing!
Have more questions about new homes in Nashville and the home buying process? Call DeSelms Real Estate today at 615.550.5565 to speak to one of our award winning agents!
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