If you’re buying a house—especially an old one—you might be thinking about getting a home warranty. Because nothing’s worse than buying something and having it break right away.
But before you go spend that money, let’s take a look at what exactly a home warranty is and how it works.
Let’s get right to it!
What Is a Home Warranty?
A home warranty (aka homeowners warranty) covers plumbing, electrical and HVAC systems, as well as major appliances—usually for one year. You pay a set fee when you buy your home, and the warranty company agrees to help pay to repair or replace stuff that breaks.
For new homeowners, a warranty sounds like a good way to protect yourself from having to spend lots of cash repairing or replacing major appliances or home systems that break. For instance, a broken HVAC system could set you back thousands of dollars. (And we all know money can get pretty tight after buying a house.)
Oh, and be careful not to confuse a home warranty with home insurance.
Home Warranty vs. Home Insurance
While a home warranty covers stuff that breaks, homeowners insurance covers your home (and its contents) if it’s damaged or destroyed by fire, a windstorm, hail or lightning. It also covers theft and vandalism.
Homeowners insurance usually covers much bigger losses that the average person can’t afford to fix. It’s also mandatory with most mortgages. And if your home is at risk of being damaged by a flood, an earthquake or a hurricane, you’ll need separate insurance policies for those types of natural disasters.
What Does a Home Warranty Cover?
Home warranty coverage varies depending on the company you’re using and the plan you choose. But most home warranties cover these things:
- Electrical systems
- HVAC systems
- Major appliances (washers, dryers, refrigerators, dishwashers, stoves)
- Hot water heaters
- Sump pumps
- Garbage disposals
The more things you want home warranty coverage for (like a swimming pool pump or a television), the more you’ll pay for your warranty.
Keep in mind: A home warranty only covers repairs after manufacturer’s warranties—for things like appliances or your HVAC system—have expired.
How Does a Home Warranty Work?
Okay, let’s say that a week after moving into your new house, your heat goes out. You’re freezing and fuming mad at the same time! If you have a home warranty, you’ll have to file a claim to get your furnace fixed. And here’s how that process goes:
- You call the warranty company to report the problem and file a claim.
- The warranty company sends a repair technician to your home to take a look.
- The tech tells the warranty company what the problem is.
- If it’s a repair your warranty covers, the warranty company pays some or all of the cost to fix it.
- The warranty company charges you a service fee (sometimes called a deductible)—usually $75–125—even if the repair is something the warranty company doesn’t cover.1
- If the issue isn’t covered by your warranty, you’ll have to pay someone to fix it on your own dime.
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?
A typical home warranty plan is about $1,050 a year (sometimes broken into monthly payments).2 Some warranties may cost more or less, depending on your home and how long the warranty is for. And don’t forget about the $75–125 service fee you pay whenever you call for repairs.
The price varies depending on the type of home 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.
Find expert agents to help you buy your home.
And if you’re buying a new home directly from a builder, you’ll often get a builder’s warranty included in the sale price. This will cover any structural problems with the house or any other defects related to the plumbing, electrical or HVAC systems.
Warranty companies usually 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 your fridge goes out and the ice cream melted all over the place. Your warranty company might dish out a maximum of $800 to replace your fridge, even though a new one will cost you closer to $1,200.
That $800 isn’t the “full replacement” coverage you were thinking of. Not cool.
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.
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.
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: That annual premium and service fees can 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 fire.)
Is a Home Warranty Worth It?
So let’s get down to brass tacks. Is getting a home warranty worth it? Read our lips: No!
A home warranty isn’t worth it for home buyers or homeowners. In just about every case, you’ll spend more on the warranty than you would if you just paid for repairs out of pocket.
Most home repairs cost less than $500.3 That means you could pay for two or three repairs a year with what you would’ve spent on a warranty premium and service fees. Yes, stuff breaks—that’s just part of homeownership. But you’d have to be pretty unlucky to have three appliances or home systems break in one year.
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 pocket and save it to pay for repairs 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.
Now, sometimes a seller will include a one-year home warranty as a way to make their home more attractive to buyers. If that’s the case, go ahead and take the warranty—or see if you can get the seller to lower the price if you skip the warranty.
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 3–6 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 a manufacturer’s warranty—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. This will extend their life and hopefully you’ll be able to catch minor repairs before they become major.
Check the lifespan of your appliances
Use an online guide to see where your appliances are in their stage of life.4 Budget and save for things you know you might need to replace in the next few years. Got a harvest gold stove? Yep, start saving for a new stove now.
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.
When you work with a RamseyTrusted real estate agent, you’ll have a pro in your corner to help you crush your home-buying goals. And connecting with them is free.
- Start budgeting and saving for an emergency fund with the EveryDollar budgeting app.
- Get a quote for homeowners insurance from a RamseyTrusted pro.
- Choose a RamseyTrusted real estate agent to start your buying journey.