Home LoansMortgage

Is a Home Warranty Worth the Cost?

When you switch from renting to owning a home, you’ll need to have a plan to cover maintenance and repairs. In some cases, a home warranty can help reduce the cost burden.

But are home warranties worth it? After all, appliances eventually break down and will either need to be repaired or replaced. It’s the unpredictable nature of those expenses that could make a home warranty a worthwhile purchase.

In this article, we’ll cover:

What is a home warranty?

A home warranty is a service contract that pays to cover the cost to repair or replace your home’s appliances and systems. The items that home warranty companies will cover varies, but here are some typical inclusions:

  • Dishwashers, ovens, refrigerators, washers and dryers and other appliances
  • Electrical, HVAC and plumbing systems
  • Septic systems or wells
  • Pool and spa equipment
  • Roof leaks

How does a home warranty work?

As you do with an insurance policy, you pay a premium for your home warranty coverage. If there’s an issue with one of the covered appliances or systems, you’d call your warranty company to file a claim and have them send out a technician.

The technician will determine whether the system can be repaired or must be replaced. In most cases, you can expect the technician to make repairs unless the item needs replacement. As long as the system or appliance is covered by your warranty and the repair or replacement isn’t excluded from coverage, then all you’d be responsible for paying is a service fee.

How much does a home warranty cost?

The average cost of home warranty coverage ranges from $300 to $600 per year, according to Consumer Affairs. However, HomeAdvisor puts the average annual cost at $886. You’ll likely pay monthly for the coverage rather than in a lump sum each year.

There’s also the service fee you pay each time you file a claim, which can range from $50 to $100 per visit, according to Consumer Affairs.

Home warranty cost comparison

Is this type of coverage worth it? That depends on several factors, including the age of your existing appliances and if they’re covered by other policies. Let’s look at some average repair costs for common household appliances and systems, according to data from HomeAdvisor:

Item  Repair Cost 
Average appliance $171
A/C unit $356
Drain $217
Furnace $289
Heat pump $357
Hot water heater $569
Roof (asphalt shingle) $712
Swimming pool heater $424
Toilet $222

 

Let’s say your A/C unit and hot water heater break down in the same year. Based on the average repair costs in the table above, you’d have to pay $925 out-of pocket to fix both systems. If your one-year home warranty cost fell somewhere between the $300 to $600 range (plus what you’d pay in service fees), you could potentially save a few hundred dollars on repairs.

Keep these considerations in mind:

  • Do you already have coverage elsewhere? If the appliances in your home are new, repairs may already be covered by the manufacturer’s warranty. Most major appliances come with a written warranty that is included in the price of the product, according to the Federal Trade Commission. This differs from the extended warranty retailers often encourage you to buy when making a major purchase.
  • Did you buy the appliance with a credit card? If you purchased any appliances with a credit card, you might be adding an additional year of coverage under the manufacturer’s warranty to those items. For example, Visa Infinite and Signature cards offer a one-year extended warranty on eligible purchases, while all types of American Express cards provide the same benefit, according to research from ValuePenguin, a LendingTree company.

Should I get a home warranty when buying a house?

Answering this question is often dependent on the condition of the home you’re purchasing. For example, if you’re buying a newly constructed home, separate warranty coverage may not be necessary. Homebuilders usually cover HVAC, plumbing and electrical systems for two years and may cover major structural defects for up to 10 years.

Another factor to keep in mind is the importance of a home inspection. While they’re not required as part of the mortgage lending process, home inspections provide a professional evaluation of a home’s condition, including its major systems and structure. If the inspection reveals severe problems with the home, it might be wise to purchase a home warranty (or negotiate with the seller to cover that cost), or just walk away from the deal.

A home warranty is worth it if: A home warranty isn’t worth it if:
  • You have limited access to cash for unexpected repair or replacement expenses.
  • The warranty covers only the least expensive solution to the problem, which could be recurring repairs.
  • Your appliances are dated and could break down in the near future.
  • You’re limited to only using the company’s approved  vendors.
  • You’re selling your home and want to provide another homebuyer incentive.
  • You’re buying a newly-constructed home.

Coverage limitations

Before you decide to purchase a home warranty when buying a house, read the contract carefully so you know what is covered and what isn’t. Then consider the condition of the home, its systems and appliances. Take a look at the International Association of Certified Home Inspectors’ life expectancy chart for a better understanding of how long appliances and systems typically last.

Gather quotes from multiple companies and review each contract for any coverage limitations. For example, a contract from a major home warranty provider imposes a $750 limit for plumbing repairs and up to $2,000 for A/C repairs per contract term.

Also consider whether you plan on replacing the items yourself in the next couple years. If you intend to remodel the kitchen and replace all appliances within a year of buying your home, a home warranty might be a waste of money.

If you decide that the coverage just isn’t worth the cost, you might consider boosting your emergency fund or setting up a separate savings fund to pay for repairs or replacements out of pocket.

 

Compare Mortgage Loan Offers