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What Is a Home Warranty? Is It Worth It?

Nothing’s worse than buying something and having it break shortly after. It’s even worse if what broke was super expensive! That’s why extended warranties were invented.

If you’re about to buy a house or already purchased one—especially an older one—maybe you’re considering getting a home warranty.

To help you make a smart decision, we’ll explain what exactly a home warranty is and why we think you don’t need one (hint: they’re actually rip-offs).

Let’s get right to it!

What Is a Home Warranty?

A home warranty or a home buyers warranty is an annual service contract where you pay a set fee to protect yourself from the more expensive costs of repairing or replacing your home’s major appliances and systems that break down by normal wear and tear.

Just be careful not to confuse a home warranty with home insurance. Home insurance covers much bigger stuff—like the risk of unexpected damage to the actual structure of your home due to fire or flood, and it’s mandatory with most mortgages.  

What Does a Home Warranty Cover?

Keep in mind that home warranty plans vary in their coverage, depending on the company you’re using and the level of coverage you want.

Find expert agents to help you buy your home.

As an example, most home warranties include repairs to working parts of your home like:  

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

The more you want covered (like a swimming pool pump or a garage door opening system), 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, and you’re not sure what the problem is. 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 the cost to fix it.
  5. If the issue is not covered by your warranty, you have to pay someone to fix it.
  6. For every call out, you’re charged a service fee—even if the warranty company can’t (or won’t) cover the repair and its cost.  

So, even if you have a home warranty that doesn’t mean you can say goodbye to repair bills for good! 

How Much Does a Home Warranty Cost?

A home warranty plan can cost around $200—1,700 annually (usually broken into monthly payments).1 And get this: You also pay a $75–125 service fee on top of that whenever you call for repairs.2 Not cool.

The price varies depending on the type of property you live in and the level of coverage you’re looking for.

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 in-built appliances, HVAC unit and water heater. 

Extra Fees

You’ll also wind up paying the difference between the maximum amount your warranty company says it’ll cover for a repair or replacement and how much the entire job ends up costing, if greater.  

For example, let’s say the washing machine can’t be fixed and needs to be replaced. 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 really 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—others say they’re downright ugly. So what’s the truth? To help you decide for yourself, check out the pros and cons.

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.

Here’s how a home warranty helps:

  • Protects you from unplanned expenses. A warranty could help you cover the cost of repairing expensive appliances and systems that break down when you don’t have the money to cover it yourself.
  • Saves 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 waste time collecting contractor quotes or tinkering 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 just a few examples:

  • Improper maintenance. The warranty company could refuse to pay out because the appliance has an old part (that you didn’t know about) that should’ve been replaced ages ago. So, because you didn’t properly “maintain” the appliance, they deny your repair claim.  
  • Repair instead of replace. The company may insist on repairing an appliance even though you’d rather replace it because it’s already broken down so many times. But they could refuse to replace it because it 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 it isn’t covered by the type of warranty plan you have.
  • Lack of choice. When it comes to repairs and replacements, you’ll have little say in the type of contractor your warranty company selects. If they’re unprofessional, you can’t do anything about it. You also won’t get much of a say in the brand and model of the replacement parts the contractor uses.

Is a Home Warranty Worth It?

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.

The One Exception: Home Sellers

The only time it’d ever be useful to purchase a home warranty is if you’re selling your home and need to sweeten the deal.

Offering buyers a year’s worth of warranty coverage might make it more attractive if you’re in a competitive market—or if your house is on the older side.

But if you don’t fall into that category, don’t get a home 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 already have a full emergency fund of three to six months of expenses. But if you’re still nervous about home repairs, set aside some extra money in the emergency fund to cover them. 

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.

Get Major Items Serviced Regularly

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

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

If you’re buying a house and still aren’t sure whether you should get a home warranty, a real estate agent can help. To find an agent we trust, try our Endorsed Local Providers (ELP) program.

We only refer agents who meet our high standard for excellent service. So they’ll help you avoid mistakes when buying a house.

If you’re selling a house, an agent with expert negotiating experience can guide you on whether it’d be smart to offer your buyer a home warranty to sweeten the deal.

Find your real estate agent today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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Buy a House With an Agent Who Serves, Not Sells.

You need an agent who cares more about you than their commission check.
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Buy a House With an Agent Who Serves, Not Sells.

You need an agent who cares more about you than their commission check.
Find a Buyer's Agent