Are Home Warranties Worth It?

When you own a home, maintenance and repairs are inevitable. A home warranty can cover most of the cost of fixing or replacing things that break down, but they only last for a limited time and aren’t cheap. So, are home warranties worth it? Probably not, though there are some exceptions. For example, a home warranty can help if you’re currently strapped for cash and have an older home.

How does a home warranty work?

A home warranty is a service contract. The provider will cover all or part of the cost to repair things that break, or replace what can’t be fixed. For example, if your dishwasher decides to go on strike, you can call your home warranty company and put in a claim. The company will send a contractor to your home and make the dishwasher step back in line or retire and replace it.

There are limits to this, however.

Coverage limitations

A home warranty will only cover appliances and appliance parts (like refrigerator compressors and ovens) and systems (like heating and air conditioning) that are spelled out in the contract. It may not cover an entire appliance or system, such as the refrigerator icemaker and water dispenser or an exterior propane tank.

If you want to get a home warranty, review the small print to ensure the systems and appliances you have are covered. You could get more coverage in a more expensive warranty.

Home warranty vs. homeowners insurance

A home warranty protects you from paying for things that break due to age, wear and tear. Homeowners insurance protects you from shelling out for damage to your property from an event, like a fire or natural disaster. It typically covers the entire home — the building structure and its contents, including your personal belongings.

Mortgage lenders often require you to have home insurance, whereas a warranty is an option that home sellers may offer to sweeten the deal or your real estate agent may recommend.

How much does a home warranty cost?

The cost of a home warranty depends on several factors, including location, deductible amount and how much coverage you want. Sprinkler systems, fireplaces and pools cost more.

The typical price for a home warranty ranges from $220 to just over $1,800, according to HomeAdvisor. A basic home warranty without any extras and a $100 deductible in Charlotte, N.C., LendingTree’s headquarters, costs about $57 a month, which is just under $700 annually.

Are home warranties worth it when buying a house?

When you look into a home warranty, be sure you understand what is and isn’t covered. Remember, you could buy one and nothing may break. Or you could buy one and it ends up saving you thousands. Here’s when you should and shouldn’t consider getting a home warranty:

When to consider one

• When you don’t have the ability to cover a major expense out of pocket. Buying a home is expensive. If the closing costs and down payment wipe out your checking account, it may be worth it to have a home warranty in place until you have saved up.
• When the home isn’t new construction. Older homes typically need more maintenance and attention than a new construction home and older appliances may be near the end of their life cycles.
• When the home inspection reveals that you’ll need fixes and replacements soon. If your systems and appliances are near the end of their lifespans, it may be wise to get something that’ll cover their replacement.
• When you’re new to an area. A home warranty can set you up with reputable contractors. If you’re new to the community, you may not know any yourself.

When not to consider one

• When you’re building your home. Builders typically provide a home warranty to the first buyer — if your home already comes with one, you don’t need to buy one.
• When you have a healthy rainy-day fund. If you still have a good padding of cash after purchasing a home, you may feel comfortable in your ability to financially address any issues that arise.
• When a warranty from the previous owners can be transferred to you. Some warranties on new construction last 10 years.
• When there’s an up-to-date maintenance schedule. It’s great if the previous owners can show that regular maintenance has been completed on the home’s systems. When things are regularly serviced, there’s less risk of them breaking.