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Home warranties minimize out-of-pocket repair and replacement costs when appliances and other systems in your home act up. But they don't cover everything and some have policy limits that may leave you with out-of-pocket expenses you didn't count on.
Before buying one, it's important to understand when having a home warranty might make sense (and when it probably doesn't), how to choose a plan that provides the protection you need and alternative ways to pay for repairs.
Is a Home Warranty Worth It?
Having a home warranty plan to fall back on can help ease your financial burden when things stop working the way they're supposed to. The value it provides depends on your financial situation and the age and condition of the covered items in your home.
When a Home Warranty Could Be Worth It
Check out these scenarios for when the cost of a home warranty plan could be worth it.
- You're buying an older home. Nothing lasts forever, and the cost of repairs can add up quickly when you buy an older home. For example, a washer and dryer will set you back an average of $1,000 to $2,300, while the average cost to replace an HVAC system can run $5,000 to $14,000 or more, according to HomeGuide. A home warranty can reduce your out-of-pocket costs when covered items start to wear out.
- You lack repair knowledge. If you'd have to call a service technician every time something breaks, no matter how large or small, the financial protection a home warranty provides may be worth it.
- You're a first-time homebuyer. Total homeownership costs can come as a shock to first-time homebuyers. If your budget is stretched thin from saving for a down payment and scraping together closing costs, a home warranty can minimize the impact to your finances if you need repairs soon after you complete your home purchase.
When a Home Warranty May Not Be Worth It
Warranties don't always make financial sense. Here are some situations when it might be a good idea to skip the coverage.
- You have a solid emergency fund. When you have enough cash set aside in an emergency fund to handle unexpected expenses, you may not need a warranty.
- Your appliances are new. The cost of a warranty may not be worth it if you're buying a new home or the previous owner recently upgraded the appliances and other home systems.
- You're handy around the house. If you can look up a video online and figure out how to replace the igniter in a gas oven or a fuse in your washing machine, you may be able to handle most repairs on your own.
Be aware: You're typically stuck with the technicians the home warranty company has a relationship with, so a warranty probably isn't a good fit if you want control over who handles repairs.
How Much Does a Home Warranty Cost?
The average cost of a home warranty is $400 to $1,000, according to Redfin. However, the price you pay could be higher or lower, depending on the company and level of coverage you choose. Rates are generally higher if you opt for an expanded policy instead of the basic version or purchase add-ons that provide broader coverage.
Beyond your premium, you'll also pay a service fee every time the company sends someone to your home to diagnose a problem. Service fees average $75 to $125 per visit, according to Redfin.
How to Choose a Home Warranty
Here are some tips to help you choose a warranty that meets your needs.
- Read the fine print. Covered items, exclusions, policy limits and pricing vary by policy and provider. Read the plan carefully so you understand what the warranty will and won't cover. Keep in mind that it may not pay for an item's full replacement cost even if it's covered under the warranty.
- Compare policy costs with repair fees. Home warranties make financial sense when you save more on repairs than you pay for the contract. If a warranty doesn't cover the full cost of a repair or replacement, it may still be worth it to reduce your out-of-pocket expenses.
- Compare service call fees. With a warranty, you typically have to pay a fee every time a technician comes to your home to diagnose a problem. Comparing fees between companies helps you understand your total costs.
- Review waiting periods. You generally have to wait a certain number of days after purchasing the policy to submit a claim. Repairs for items that start acting up during that window aren't covered by the warranty.
- Check the company's reputation. Looking at reviews on sites like the Better Business Bureau, TrustPilot and home service marketplace Angi can give you an idea of other customers' experiences with the company. That doesn't guarantee you'll have a similar experience, but it can help you gauge whether the company is reputable.
Alternatives to Home Warranties
Warranties aren't the only way to pay for home repairs. Here are some alternatives to explore.
- Home repair fund: Set aside the money you'd pay in premiums each year in a high-yield savings account. To build up your savings even faster, transfer a specific dollar amount into the fund each month so you have a financial cushion that allows you to pay for repairs out of pocket.
- Manufacturer or extended appliance warranties: Appliances generally come with a manufacturer's warranty that typically lasts a year or two with the option to extend coverage through the manufacturer.
- Credit card extended warranty: When you purchase an appliance with a credit card, the card issuer may provide an extended warranty as an added perk at no additional charge.
- Personal loan: Borrowing the money to cover repair costs could be an option if you have good credit and can qualify for a low interest rate on a personal loan. But because taking out a loan will add to your debt load, consider other payment options first.
Learn more: How to Pay for Emergency Home Repairs
Frequently Asked Questions
How Does a Home Warranty Work?
In exchange for paying your premium, a home warranty covers the cost to repair appliances and home systems that malfunction due to normal wear and tear. When a covered item stops working, you pay a service fee for a technician to assess the situation and report their findings.
Based on what the contractor finds, the warranty company will either approve or deny your claim. If the company approves the claim, the contractor repairs the item, and if the claim is denied, you're responsible for handling the repair.
What Does a Home Warranty Cover?
Home warranties typically cover most appliances, including refrigerators, dishwashers, washing machines and dryers, and major systems, such as the plumbing, heating, electrical and air conditioning. Because covered items vary by company and the plan level you choose, it's crucial to read the terms and conditions carefully so you understand what's covered and what's excluded.
Is a Home Warranty the Same as Home Insurance?
No. Home warranties protect against the normal wear and tear of appliances and major home systems. Home insurance pays to repair or replace the structure and contents of your home after sudden and accidental events, such as severe weather, fire or theft.
Learn more: Home Warranty vs. Home Insurance: What's the Difference?
The Bottom Line
A home warranty can be a worthwhile investment for homeowners who anticipate having to make repairs in the not-so-distant future. But as with any contract, it pays to read the fine print.
Home warranties don't generally cover items that weren't properly maintained or are malfunctioning because of pest damage, cosmetic defects or improper installation. When an item needs to be replaced, the warranty company generally has the final word on replacement equipment, which may not meet your expectations.
Taking the time to understand the nuances of the contract before you buy can help ensure the warranty meets your expectations when you need to file a claim.