A warranty is often considered to be a basic safety net for any consumer purchase: whether it’s an appliance, a piece of electronic equipment, or a mattress, a warranty provides you with a recourse in the event that the product you purchased is defective. When buying a new home, this safety net still exists.
Home warranties are not the same as home insurance. If you already have a home insurance policy – and you probably do if you have an insured mortgage – that insurance protects your home and belongings in the event of natural disasters, fire, and other major calamities. A home warranty, on the other hand, protects you against anything that goes wrong with the nuts and bolts of the home itself.
Canada Mortgage and Housing Corporation (CMHC), Genworth Canada, and Canada Guaranty require new home builders to belong to a Warranty Program in order to receive mortgage insurance on high-ratio loans (80 per cent or higher).
The requirements for home warranties vary by province. Alberta, Saskatchewan, Manitoba, Ontario and Quebec incorporated mono-provincial warranty programs while British Columbia included the Yukon, and Nova Scotia, New Brunswick, Newfoundland and Prince Edward Island incorporated a single New Home Warranty Program. In British Columbia, Alberta, Manitoba, Ontario and Quebec, builders must provide home buyers with a third-party warranty. In the rest of Canada, the decision is left up to the individual builder, but members of the Canadian Home Builders’ Association are required to offer a warranty as a condition of membership.
Under the Homeowner Protection Act of B.C., every new home offered for sale or built under a construction contract in B.C. must be constructed by licensed residential builders, who are regulated by the Homeowner Protection Office. The cost of the warranty insurance is included in the purchase price of your home and protects you from a range of construction defects for designated periods of time: two years on specified labour and materials; five years on the building envelope (which includes the components that separate the indoors from the outdoors, such as exterior walls, foundation, roof, windows and doors), including water penetration; and 10 years on the structure itself.
Coverage offered is the lesser of $200,000 or the purchase price for new single-family homes, and the lesser of $100,000 or the purchase price for strata homes, where the owners own their individual strata lots and together own the common property and common assets. For common strata property, coverage is limited to the lesser of $100,000 times the number of units, or $2.5 million per building.
By law, every builder of residences in Ontario must be registered by Tarion Warranty Corporation
, a private corporation financed entirely through the fees paid by its members (residential building contractors). Tarion administers the Ontario New Home Warranties Plan Act, which outlines the warranty protection that new home and condominium builders must provide by law to their customers. The warranty can be for one, two, or seven years, and covers homes in the event of poor workmanship, water penetration, and major structural defects. This warranty also covers delayed closing and deposit protection.
Coverage varies depending on the type of home you buy. For example, homes built on existing footings or foundations are not covered. What is covered: down payments, up to $20,000 for a condo and $40,000 for a single-family home; visible construction defects and unapproved substitutions for a period of one year; water infiltration and defects in the electrical, plumbing and heating systems, as well as in the roof and siding, are covered for two years; and major defects in the structure are covered for seven years. The maximum coverage for a single-family house or a condo is $300,000. Common portions of condominium buildings are covered for $50,000 multiplied by the number of units, up to $2.5 million.
According to Bone Structure, a company that specializes in the design, development, and marketing of technologies for residential and commercial construction, contractors in Quebec who have a permit from the Régie du bâtiment du Québec to build and sell new homes must adhere to the Guarantee Plan for New Residential Buildings
. New single-family homes, semi-detached homes, or row homes are all covered by the guarantee, including multi-unit homes and co-owned properties with four or fewer stacked condos.
Before the buyer takes possession of the home, the down payment is protected up to $39,000, as long as the sale has not yet been notarized. During receipt of the home, any completion and correction of work has to be reported in writing within a three-day period in order for it to be covered. After the buyer takes possession of the home, faulty work and defects that are not visible upon receipt are covered for one year; hidden defects are covered for three years after receipt; and defects in the design, construction, workmanship, and soil defects are covered for five years.
Maximum coverage for all faulty work and defects for a single-family home is $290,000. For multiple-family buildings, the amount is $130,000 per unit, or $1,900,000 for the entire building. For a condo, provision is made for $130,000 per unit but the amount for the building as a whole totals $2,600,000, as it includes the common portions. If a builder is late delivering the property, the buyer is entitled to up to $5,500 for the cost of furniture storage, accommodation, and meals.
The Homeowner Protection Office
is the organization responsible for the mandatory new home guarantee in British Columbia, the terms of which are determined by the Homeowner Protection Act. Private insurance companies are licensed to manage and enforce these guarantees, which includes the following: Construction defects related to general work, electricity, plumbing, heating and ventilation are covered for two years; The building envelope, foundation, roof, windows, and doors are covered for five years; and defects in the structure and in the load-bearing elements are covered for ten years.
The amount of the coverage for a single-family house is $200,000, or the purchase price if the latter is lower. For a condo, coverage is $100,000, or the purchase price if it is lower. The common portions of condominium buildings are covered for $100,000 per unit, for an eligible total of $2.5 million.
Newfoundland and Labrador, Nova Scotia, New Brunswick, and Prince Edward Island
The new home warranty in the Maritimes is offered by Atlantic Home Warranty
, a not-for-profit organization established by a group of building contractors. A warranty is not mandatory here, and only builders who are members of Atlantic Home Warranty can offer the Atlantic Home Warranty Program.
This warranty is administered and managed by Lux Residential Warranty, an insurance company that specializes or specializing in protecting new homes. The warranty coverage is for seven years and mostly covers major structural defects. Certain options are available, including coverage of the down payment made. The maximum amount covered is $50,000 for a single-family house or condo.
The New Home Buyer Protection Act of Alberta ensures that all new homes have mandatory warranty protection. The Alberta New Home Warranty Program,
made up of residential building contractors, manages and administers the warranty. For one year, the warranty covers any defects in materials and construction; for two years, the warranty covers electricity, plumbing, heating and ventilation; for five years, the envelope is covered and that coverage can be extended for another two years; and the structure is covered for 10 years.
The Alberta New Home Warranty Program also provides protection to home buyers if their home is not completed on time or if it is unliveable due to repairs necessary. In this instance $150 per day up to a maximum of $150,000 is provided. There is optional coverage for 20 per cent of the down payment, with a limit of $100,000. The maximum protection for a single-family house is the lower of the purchase price of the home or $265,000. In the case of a condo, it is the lower of the purchase price or $130,000. The common spaces in condominium buildings are insured for $130,000 per condo unit, to a maximum of $3,300,000.
In Manitoba, new home warranties are optional. The New Home Warranty Program of Manitoba
, a not-for-profit association of building contractors, offers a guarantee on new homes, and – you guessed it – only its members can offer the warranty to homebuyers. The management and administration of the warranty are entrusted to private insurers.
The coverage offered by the New Home Warranty Program of Manitoba includes coverage of $25,000 for the down payment made. Defects in materials and construction are covered for one year, major structural defects are covered for five years, and if the residents of the home have to move during a repair to the structure, $3,000 is provided for relocation. The maximum coverage is $50,000 for a single-family house or a condo, but this only applies to condos that are less than four stories high.
The Saskatchewan New Home Warranty Program
, a not-for-profit association of residential building contractors, offers a warranty on new homes, but it is optional. Only members can offer this warranty to homebuyers. Private insurers take care of its management and administration.
The warranty offered by the New Home Warranty Program includes coverage of $25,000 for any down payment made. It also covers defects in materials and construction for one year; water infiltration for two years; major structural defects for five years, and an option to extend protection of the structure to 10 years is available. The maximum amount of the coverage is $100,000 for a single-family house or a condo. The protection of the common portions of a condominium building is $100,000 per unit up to a total of $1 million.
If you’re buying a resale home, then there are still some home warranty programs that may be available to you. But should you spend the money on them? Chances are, you won’t have to. The sellers of a property may choose to get a home warranty to make their home more attractive to buyers. If the home is sold by its original owners during the time that it’s still under warranty, then the new owner will assume the warranty for the remainder of the term.
A Certified Resale Home Warranty
is provided by First Canadian Title Company Limited (FCT). A seller pays a flat fee and gets a pre-listing home inspection, as well as an 18-month warranty that covers heating and cooling systems, roof and foundation repairs or replacements up to $20,000. The program launched in Winnipeg and Niagara but Mark Page, head of the Certified Resale Home program at FCT, says that they’re planning on making the program available throughout Ontario in 2017.
Another option is a Certified Pre-Owned Home warranty, which is available through UNIRISC and is underwritten by Trisura Guarantee Insurance Company. The warranty is for 12 months and covers structural issues, home systems, and home appliances for residential homes.
Other warranty options
There are some lenders that provide warranties of their own when you get a mortgage. First National, for example, has the Encompass Home System Warranty Program, which is free for the first year and provides up to $10,000 in eligible home repairs annually for central heating and air conditioning, electrical, water heater (if you own it) and core plumbing. CIBC also offers a program through Assurant Services Canada Inc. that is free for the first five months and covers up to $10,000 in a 12-month period for central heating and air conditioning, electrical, water heater, and emergency plumbing. Credit unions offer similar programs, like DUCA, which has various warranties available to cover home appliances and/or home systems. They’re free for the first six months.
A home inspection is great, but they can’t see behind walls and, depending on the time of year that they’re doing the inspection, are limited by certain conditions on thoroughly inspecting parts of the home. A home warranty provides buyers of new and resale homes alike even more confidence that they’ll be protected in the event that their home begins to fall apart the moment they get the keys.
Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate