DEFINITION:
A home warranty is a service contract that pays to repair or replace major home systems such as electrical components, kitchen appliances, and plumbing. Home warranties come in different forms and the components they cover can vary.
Key Takeaways
Home warranties cover major home systems, like electrical and plumbing, and structural elements, such as support beams.
Newly constructed homes often come with a builder’s warranty, but you can purchase a home warranty on a home of any age as long as all systems are currently working.
Companies that specialize in home warranties typically offer several plans.
Third-party home warranty contracts often include trade call fees and may limit the amount paid to repair or replace certain systems.
A home warranty can provide protections not offered by a standard homeowners insurance policy.
How Does a Home Warranty Work?
A home warranty covers breakdowns of your dwelling’s appliances and major systems (A/C, for example) for a specified period of time, typically one year or more. Most home warranties are renewable at the end of the coverage period.
If you’re buying a newly constructed home, the builder may provide a warranty with the purchase. But home warranties aren’t just for new construction—you can buy one for a non-new home, too, as long as all systems are currently working.
Like a warranty that comes with an automobile or appliance, home warranties are issued in writing and specify the terms of coverage and how to file claims.
Note
Individual sellers may include a home warranty with the sale of an existing home, or buyers may choose to purchase one when closing.
1.Coverage Terms
The terms of a home warranty define the coverage period, the home elements that are covered, and any exclusions. A home warranty will define parts or repair cost limitations and fees, if any.
2 Filing Claims
A home warranty also details where the homeowner must file a claim, how the claim must be filed, and the responsibilities of the warrantor, or home warranty company. If a system fails or you notice a defect in your house, read the warranty to find out if it’s covered, whom to contact, and when you need to file.
For instance, if an air conditioning system fails and that system is covered under your home warranty, you would contact the warranty company and request a repair or replacement. The company would arrange for a technician to come to your home to make the repair, and you would pay a trade call fee, as defined in the terms of your contract.
In some cases, your warranty company may not cover the entire replacement cost1.
Note
When filing a home warranty claim, the Federal Trade Commission (FTC) advises to always put the request in writing and request a return receipt, even if the company says a written request isn’t required. Record the dates of all conversations and correspondence you have with the warrantor and technician, and take notes on each exchange.
3 How Does a Home Warranty Differ From Homeowners Insurance?
A home warranty doesn’t eliminate or diminish the need for homeowners insurance, although coverages may overlap. For example, your homeowners insurance and home warranty may both cover a collapsed ceiling but not a broken oven that's out of warranty. A home warranty, on the other hand, might cover the oven.
4 Where To Get a Home Warranty
Home warranties are available for new and existing homes from a number of companies, which typically offer various home warranty plans.
Some builders provide warranties on the new homes they construct, while other builders purchase warranties from independent companies. You can also buy third-party home warranties to supplement the coverage the builder’s warranty provides.
Note
According to the Federal Trade Commission, the Department of Veterans Affairs (VA) and Federal Housing Authority (FHA) require builders to cover all newly built homes backed by FHA and VA loans with a third-party home warranty.3
State laws also set home warranty requirements. For instance, New Jersey requires builders to provide a home warranty on all new homes.
5 Warranty Limitations and Fees
Some home warranties set limits on certain types of repair or replacement costs. For instance, here's an example of a First American home warranty's limits for homes in Arizona:
6
System | Limit |
Kitchen refrigerator | $2,500 |
Heated water, glycol, or steam heating | $1,500 |
Saltwater pool or spa equipment | $1,500 |
Well pump | $1,500 |
Limited roof leak | $1,000 |
Toilet replacement under upgrade (each occurrence) | $600 |
Septic tank system | $500 |
Some third-party home warranty companies don’t set limits on diagnostic, repair, or replacement costs. For example, Home Warranty of America charges a monthly fee for its coverage plans, plus a trade call fee that starts at $75, based on plan and location. In this case, you’d pay the trade call fee for a covered claim, but the warranty would cover the costs of parts and labor.
7 Costs
The average cost for a basic home warranty is $300 to $500 per year.
8 The cost of a plan depends on several factors, including the home size, type of residence, and the types of systems covered.
For example, First American's Home Warranty of America offers three plans for southern Arizona homes. The plans range in price from $375 to $535 for a single-family home. The price goes down for condos, townhomes, and mobile homes: $330 to $470.
9 Note
In addition to the premium, most plans charge a trade call service fee to send a contractor to diagnose the problem. Fees depend on your company, plan type, and state, and may start at $65-$75.
Pros and Cons of Home Warranties
Pros
Convenience
Peace of mind
Set service fees (some warranties)
Available for older homes
Cons
Overlapping coverage
Exclusions and limitations
Lack of control
Pros Explained
Convenience: With a home warranty, the warrantor will dispatch a service provider to your home, saving you the time and effort of finding a repairperson.
Peace of mind: When you purchase a home warranty, you don’t have to worry about major unexpected expenses for covered systems. Depending on the coverage you purchase, a home warranty may cover your home’s most costly systems, such as heating and air conditioning units, hot water heaters, and kitchen appliances.
Set fees (some warranties): Some home warranties offer set service fees. You pay a monthly or annual coverage fee, but when you need to repair or replace a home system, you only pay the trade call rate defined by the contract.
Available for older homes: Third-party home warranties, which you can buy for a new dwelling or your current home, offer broad protection and flexibility.
Cons Explained
Overlapping coverage: Some home warranty plans may overlap with your home insurance policy, meaning you pay twice for similar coverage.
Exclusions and limits: Damages caused by “acts of God” such as lightning or storms usually aren’t covered by home warranties.
Lack of control: The home warranty company, not you, will decide who repairs or replaces your covered system. The warrantor will also decide if your faulty home component is repaired or replaced, and with what materials.
How To Get a Home Warranty
If you purchase a newly constructed home, it may come with a builder’s warranty that provides limited coverage for up to 10 years on some systems and components.3
You can purchase a third-party home warranty at any time. However, you may get a better rate if you purchase a warranty during closing. Some title companies offer home warranties through third-party companies, while others provide their own warranties.
If you’re buying a home with new systems that are covered by manufacturerwarranties, you might not need a home warranty. On the other hand, if you’re buying an older home with old systems, or you already live in one, a home warranty can protect you in case of future breakdowns and help you avoid large out-of-pocket replacement costs.
Note
When you make an offer on a home, you can stipulate that the buyer include a home warranty as a condition of the purchase. However, the seller doesn't have to agree to it.10
Home sellers often include a home warranty in the sale price because it offers a certain degree of liability protection and often makes the home easier to sell. You may require the seller to pay all warranty costs, or negotiate for them to split the expense with you. If you purchase a home already covered by a warranty, ask the seller to transfer the contract to you.
Frequently Asked Questions (FAQs)
What are the cons of a home warranty?
Home warranties have limits and exclusions that mean a claim that seems it could be covered won't be covered. Additionally, home warranties require that you pay a fee for each claim as well as a yearly premium.
Do home warranties actually cover anything?
Yes, home warranties typically offer coverage for appliances or home systems, and sometimes both. However, home warranties typically have coverage limits and exclusions that dictate what is and isn't covered, along with how much coverage the plan provides. Know what those limits and exclusions are before buying a home warranty.