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.
Understanding how home warranties work and available coverage options can help you choose a level of protection that fits your home and budget.
What Is a Home Warranty?
A home warranty covers breakdowns of your dwelling’s major systems 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 even purchase a home warranty if you’ve lived in your home for several years, as long as all systems are currently working.
Individual sellers may include a home warranty with the sale of an existing home, or buyers may choose to purchase one when closing.
How Does a Home Warranty Work?
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.
The terms of a home warranty define the coverage period, the home elements that are covered, and any exclusions. For example, the warranty may not cover mold removal if the mold forms because of the homeowner’s neglect. Likewise, a home warranty will define parts or repair cost limitations and fees, if any.
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 warrantor and request a repair or replacement. The warrantor 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, a warrantor may not cover the entire replacement cost (see “Warranty Limitations and Fees” below).
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.
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 home insurance policy and home warranty may both cover a collapsed ceiling. But if the collapse occurred due to shoddy workmanship, you could file a warranty claim and avoid the risk of a home-insurance premium increase.
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. Third-party home warranties can also be purchased to supplement the coverage provided by the builder’s warranty.
According to the Federal Trade Commission, the U.S. Department of Veterans Affairs (VA) and Federal Housing Authority (FHA) require builders to cover all homes backed by FHA and VA loans with a third-party home warranty.
State laws also set home warranty requirements. For instance, New Jersey requires builders to provide a home warranty on all new dwellings.
Warranty Limitations and Fees
Some home warranties set limits on certain types of repair or replacement costs. For instance, First American published the following sample limits, which apply to access, diagnosis, repair, and replacement costs, for its Arizona home warranties.
|Heated water, glycol, or steam heating||$1,500|
|Limited roof leak||$1,000|
|Saltwater pool or spa equipment||$1,500|
|Septic tank system||$500|
|Toilet replacement under upgrade (each occurrence)||$600|
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 $60 to $100 trade call fee, based on plan and location, when service is rendered. 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.
The average cost for a basic home warranty is $300 to $650 per year. The cost of a plan depends on several factors, including the home size, type of residence, and the types of systems covered.
For example, Home Warranty of America offers four plans. The cost of these plans in two cities (San Francisco and Memphis) range from $41 to $53 per month for a single-family residence up to 4,999 square feet. Pricing nearly doubles to $80 to $96 per month for single-family residences of 5,000 to 7,499 square feet.
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 often range between $60 and $125.
Home Warranty of America also charges higher rates for warranties on duplexes in these same areas: $74 to $96 per month for a dwelling under 2,500 square feet.
Peace of mind
Set service fees (some warranties)
Available for older homes
Exclusions and limitations
Lack of control
- 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.
- 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.
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 manufacturers’ warranties, 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.
When you make an offer on a home, you can stipulate that the buyer include a home warranty as a condition of the purchase.
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.
- 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.