What Is a Home Warranty and Is It Worth It?

A home warranty is a one-year policy that discounts or covers repair and replacement of many of a home’s big-ticket items. These can range from appliances like a dishwasher or washing machine, to heating and cooling systems, depending on the individual policy.

Warranties can act as a safety net in case a critical component of the home breaks and the new homeowner doesn’t have the cash readily available to make expensive repairs.

Sometimes, sellers offer the warranty as an incentive. However, if you’re hoping to negotiate a warranty into the purchase price of the home, you might be wondering if a home warranty is worth the trouble. Keep reading to learn how home warranties work and what they cover so you can decide if having one is right for you.

Note: home warranties are not the same as homeowner’s insurance. Home insurance covers damages caused by natural disaster, fire or burglary, whereas warranties cover specific appliances or systems that break down due to age, defect or other issues.

How do home warranties work?

When a homeowner has a home warranty and something breaks, here’s the process that’s usually followed.

1. Contact your home warranty company to file a claim. The timeframe for your claim approval will depend on your warranty company and policy. 
2. The home warranty will contact a contracted service technician.
3. The service technician will schedule an appointment and come to your home to diagnose the issue. Each visit is subject to a deductible, depending on the terms of your warranty. Usually it’s between $50 and $100. 
4. The service technician will either repair the appliance or service or suggest a replacement. Not all warranties cover replacements.

What does a home warranty cover?

Exact home warranty coverage can vary by policy, but most policies cover your HVAC system, electrical appliances and major appliances, including:

• Kitchen appliances like your dishwasher and stove
• Heating and cooling systems
• Electrical components like ceiling fans and doorbells
• Plumbing-related items like water heater, toilets, sinks, showers/bath, garbage disposals and stoppages
• Washer and dryers (only covered in some policies)

Every policy differs, so be sure to read the fine print on your policy.

What's not covered under a home warranty?

Here are the systems that are not usually covered by a standard home warranty, but may be added for an additional cost, depending on your policy:

• Faucets and leaks
• Outdoor sprinkler systems
• Broken or collapsed plumbing or sewage issues
• Septic systems
• Hot tubs and pools
• Well piping
• Structural items like walls, windows and doors
• Garage doors and tracks
• Freestanding freezers
• Fireplaces
• Inspection items (meaning items that were flagged for repair prior to purchase)

Can my home warranty claim be denied?

As with any warranty policy, your claim can be denied for a number of reasons, and even with a policy in place, there’s no guarantee an issue will be covered. For example, if the previous homeowner didn’t have their furnace maintained regularly, your repair claim could be denied.

Here are some common home warranty stipulations that could limit your coverage or lead to a denied claim:

• Lack of maintenance/upkeep
• Home inspection items
• Unpermitted work
• Improper install
• Excessive wear and tear
• Aging or broken appliances

How long does a home warranty last?

Home warranties typically provide one year of coverage. Homeowners are usually offered the option to extend the coverage for a second year. If you negotiated the warranty as part of your home purchase, the seller will usually only pay for one year of coverage. After that, you’ll be responsible for either extending coverage or paying for repairs out of pocket.

Who pays for a home warranty: Buyer of seller?

It depends on what’s common in your local market, but home warranties are often offered upfront by sellers as an incentive. Sometimes the buyer’s agent offers a warranty as a gift. Or, buyers request a home warranty as part of the negotiations. It is also possible for a seller who is already covered by a home warranty, to transfer the policy to a new buyer.

If you aren’t offered a home warranty by a seller or if they aren’t willing to add one to the deal, you can always take out your own policy at the same cost. Home warranties aren’t only available to new homeowners. Existing homeowners can buy a home warranty policy at any time, but you’ll get better pricing closer to the purchase date.

Talk to your agent about working a home warranty into your purchasing contract.

What does a home warranty cost?

When purchasing a home warranty, expect to pay between $300-$800 for one year of coverage. The cost of the premium is paid in advance, and any deductibles are paid at the time a claim is made.

Many different companies offer home warranties, so it’s worth shopping around to find a warranty with the lowest price and best coverage.

Are home warranties worth it for first-time home buyers?

A warranty is useful if you don’t have an emergency savings fund set up yet or your savings are depleted after buying a new home. Warranties can also be a good fit for first-time homeowners who are used to a landlord dealing with repairs and are just learning how to manage home maintenance issues.

Keep in mind, some home systems have lengthy warranties that you will benefit from without a home warranty. So be sure to check with the seller for warranty information on your HVAC system, water heater or appliances.

Are home warranties worth it for new construction or renovated homes?

Not usually. If the home you’re buying is new construction or has recently been renovated, the appliances and major systems should still be covered under manufacturer’s warranties. And in the case of new construction, home builders often cover defects for a period of time under their own warranty.

Do I need a home warranty?

You aren’t required to have a home warranty, but a policy can be useful if you don’t have a lot of cash for unexpected repairs or if you want peace of mind for your first year of homeownership. According to Zillow’s 2021 Consumer Housing Trends Report, 22% of buyers who made repairs in the first year of their home purchase, also reported making unexpected repairs. A home warranty can help reduce or eliminate the cost of some big ticket, unplanned repairs.