Buying a house in the Bay Area nowadays requires at least a down payment of 200,000 to 300,000 dollars, along with a 15 or 30-year mortgage. A house is more than just a place to live; it's our home. So, how can we better protect it? In this article, we'll talk about two essential layers of protection to consider when buying a house.
The first layer of protection is a Home Warranty. This is a contract between the homeowner and a home warranty company. The homeowner pays an annual fee of around $300 to $600 to the warranty company in exchange for discounted repair and replacement services for major components of the house, such as the furnace, HVAC, plumbing, and electrical systems. It can also cover major appliances like washers and dryers, refrigerators, and larger systems like swimming pools. In the case of buying a second-hand house, sellers usually pay for one year of home warranty for the buyer upon the advice of their real estate agent. This provides the buyer with some protection, especially considering the large down payment and monthly mortgage payments. If various items in the house start malfunctioning shortly after moving in, the repair costs can be quite painful. With a home warranty, major repair costs can be avoided, allowing for peace of mind.
If you're buying a new house, it's important to review the Home Builder's Warranty. This warranty is required by California law for newly built homes. Since many new homes are contracted before or during construction, this warranty protects the buyer. If construction-related issues are discovered after closing the deal, the builder is responsible for repairs. Different builders offer different warranty coverage, so it's important to thoroughly inquire about the warranty's scope, duration, and the claims process before signing the contract.
The second layer of protection is Home Insurance, also known as homeowners insurance. When you take out a mortgage to buy a house, the lender will require you to purchase homeowners insurance. A standard homeowners insurance policy typically includes four basic types of coverage:
1. Coverage for the structure of the house. If the house is damaged or destroyed by fire, lightning, windstorm, or hail, the insurance will pay for repairs or rebuilding.
2. Coverage for personal belongings. If your furniture or valuable personal items are damaged or stolen, the insurance will compensate you.
3. Liability protection. This covers lawsuits for bodily injury or property damage that you or your family members or pets cause to others. For example, if someone slips and falls on your stairs and sues you for medical expenses, your homeowners insurance will protect you. The injured person will file a claim with your insurance company, which will investigate the claim. If necessary, the insurance company will cover legal costs.
4. Coverage for additional living expenses. If your house becomes uninhabitable due to fire, the insurance will pay for your hotel stay, meals, and other living expenses.
In California, many people worry about earthquakes, but earthquake insurance is not included in standard policies. Flood insurance is also not included and must be purchased separately. On average, homeowners insurance in California costs nearly $1,300 per year, or about $107 per month. It's good to keep these figures in mind when planning your monthly expenses before buying a house.
These two layers of protection, the home warranty and homeowners insurance, act as two big umbrellas shielding our house and home, protecting us from unexpected events and giving us peace of mind.
