What Is a Home Warranty? And Is It Worth It?

Nothing’s worse than buying something and having it break right away. It’s even worse if what broke was super expensive! That’s why warranties were invented: to help you replace or repair something that breaks after you buy it. (Or at least, that’s what the people who invented warranties want you to think.)

You can get a warranty for anything from your car to your blender. And if you’re buying a house—especially an old one—maybe you’re considering getting a home warranty.

But before you go spend that money, let’s take a look at what exactly a home warranty is and how it works, so you can see why they’re just not worth it. (Hint: Home warranties are rip-offs!)

Let’s get right to it!

What Is a Home Warranty?

A home warranty or a homeowners warranty is a yearly contract. You pay a set fee, and in return, the warranty company agrees to help pay for certain home repairs or replacement items.

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For homeowners, a warranty sounds like a good way to protect yourself from the more expensive costs of repairing or replacing major appliances and home systems that break, like your washing machine or your HVAC. But these plans aren’t all they’re cracked up to be.

The warranty company has a different goal. They want to collect your yearly fee . . . and that’s it. They’re hoping none of your stuff breaks because they lose money when they have to pay to repair or replace anything. In fact, they’ll do all sorts of crazy stuff to avoid giving you the help you thought you’d get from a warranty. (More on that in a minute.)

Oh, and be careful not to confuse a home warranty with home insurance. Home insurance covers much bigger stuff—like storm, fire or flood damage—that the average person can’t afford to fix. And it’s mandatory with most mortgages. So unlike home warranties, which are just junk, home insurance is a must-have!

What Does a Home Warranty Cover?

Home warranty coverage varies, depending on the company you’re using and the plan you buy. But most home warranties include repairs to working parts of your home like:  

• Electrical systems
• Plumbing
• Major appliances (washer, dryer, refrigerator, etc.)
• Heating and cooling system (HVAC)
• Furnace
• Hot water storage tank

The more things you want home warranty coverage for (like a swimming pool pump or a garage door opener), the more you’ll pay in your monthly or annual bill to the warranty company.

How Does a Home Warranty Work?  

Okay, let’s say your washing machine stops working. If you have a home warranty, this is what usually happens:

1. You call the warranty company to report the problem.
2. The warranty company sends a contractor to your home to take a look.
3. The contractor tells the warranty company what the problem is.
4. If it’s a repair your warranty covers, the company pays some or (if you’re lucky) all of the cost to fix it.
5. If the issue isn’t covered by your warranty, you have to pay someone to fix it.
6. For every call out, you’re charged a service fee—which is usually $75 to $125—even if the warranty company can’t (or won’t) cover the repair cost.¹  

So, even if you have a home warranty, you won’t get to say goodbye to repair bills for good! 

How Much Does a Home Warranty Cost?

Typical home warranty plans can cost anywhere from $220 to $1,850 annually (usually broken into monthly payments).² Some warranties may cost more or less, depending on your home and how long the warranty is for. And that’s on top of the service fee you pay whenever you call for repairs. Not cool.

Keep in mind, the price varies depending on the type of property you live in and the type of coverage you’re looking for. There are lots of different home warranty plans, and some are better than others.

And if you’re buying a newly built home directly from a developer, you’ll often get a year’s warranty included in the sale price. This will cover things like the built-in appliances, HVAC and water heater. 

Extra Fees

Here’s a fun way warranty companies get out of helping you: They set maximum repair costs for certain items, and they won’t cover anything over that amount. So you’ll wind up paying the difference between the maximum amount your warranty company says it’ll cover and how much the entire repair or replacement actually costs.  

For example, let’s say the washing machine can’t be fixed. Your warranty company might dish out a maximum of $500 to replace it, but you paid $1,000 for it a few years ago!

That $500 is not the “full replacement” coverage you were thinking of, and you might have to shell out hundreds of dollars to find a replacement you’re satisfied with. 

What Are the Pros and Cons of a Home Warranty?

Some say home warranties are good, some say they’re bad, and those of us here at Ramsey (including Dave Ramsey himself) say they’re downright ugly. But to be fair, let’s check out the pros and cons of a home warranty.

Pros

No one wants to buy a home only to have the AC break in the middle of their first summer living there. Home warranties are supposed to give you peace of mind about things like that.

A home warranty can help:

• Protect you from unplanned expenses. A warranty could help you cover at least some of the cost of repairing expensive appliances and systems that break down when you don’t have the money to cover it yourself.

• Save you time and hassle. If a home system or appliance breaks, all you have to do is make a claim with your warranty company and they’ll handle the rest. You don’t have to collect contractor quotes or tinker with repairs yourself.

Cons

Warranty agreements are full of ways for the company to make money by selling you short when it comes to the service you’re getting.

Here are a few examples:

• Improper maintenance. Home warranty companies love to use “improper maintenance” as an excuse to deny your claims. For instance, imagine an appliance has an old part (that you didn’t know about) that should’ve been replaced ages ago. Even though you didn’t know better, the warranty company won’t pay to repair the item because you didn’t properly “maintain” the appliance.  

• Repair instead of replace. The company may insist on repairing an appliance that you’d rather replace because it’s already broken down so many times. They’ll likely refuse to replace anything that can technically still be fixed—even if it’s on its last legs.

• Level of coverage. You might find that the warranty company completely refuses to cover some big-ticket items (like a very old HVAC unit) or won’t cover a repair because of the type of home warranty plan you have.

• Lack of choice. When it comes to repairs and replacements, you’ll have to work on the warranty company’s timeline. It could take them days to get around to your claim—so if the fridge dies, you better break out a cooler and some ice. You’ll also have little say in the type of contractor your warranty company selects. If they’re unprofessional, you can’t do anything about it. You won’t get much of a say in the brand and model of the replacement parts the contractor uses, either. No, thanks! 

• Cost. Those annual costs and service fees add up. And if nothing breaks, it’s kind of pointless. When things do break, you’d have more cash on hand to fix things if you weren’t forking over the money for those fees. (That’s another difference between home warranties and home insurance, by the way: A home warranty isn’t necessary because it “covers” repairs most people can pay for themselves. But home insurance covers catastrophic events that most people absolutely can’t afford—like rebuilding your entire house after a natural disaster.)

Is a Home Warranty Worth It?

Read our lips: No!

A home warranty isn’t worth it for buyers or homeowners. Remember, a home warranty only covers the cheapest repairs or replacements. And you still have those added service fees. Warranties are simply a waste of money!

It’s better to keep the money you’d spend on a home warranty in your own pocket and save up to pay for appliance repairs and replacements on your own. That way, you can control the whole process and make sure you get appliances that are right for you and your family’s needs.

Home Warranty Alternatives

Don’t worry! Not having a home warranty isn’t the end of the world. You can handle things on your own and save money by not paying for a warranty.

Here are smarter alternatives to a home warranty:  

Build an Emergency Fund

You should have a full emergency fund of three to six months of expenses before you buy a house. If you’re still nervous about home repairs, set aside some extra money in the emergency fund to cover them. (And if you don’t have an emergency fund in place yet, it’s never too late to start!)

See if Your Appliances and Systems Already Have Their Own Warranties

If you have appliances on the newer side, they might still have warranties—so covering them with a home warranty isn’t necessary. Double-check your paperwork.

But if you don’t have warranties on these items? Don’t go out and buy them. Just like home warranties, they’re made to help the warranty company make money, not to actually protect you. 

Get Major Items Serviced Regularly

Guard against major problems with systems like your HVAC or water heater by having an expert service them regularly. Tune-ups will protect big-ticket appliances in your home until it’s time to replace them.

Check the Lifespan of Your Appliances

Use an online guide to see where your appliances are in their stage of life.³ Budget and save for things you know you might need to replace in the next few years.

Get Expert Advice From a Real Estate Agent

A real estate agent can help you avoid all sorts of home-buying mistakes, like purchasing a warranty.

To find an agent the Ramsey team trusts, try our Endorsed Local Providers (ELP) program. We only recommend reliable agents who meet our high standards and serve you with excellence—that’s why we call them RamseyTrusted.

Find your real estate agent today!