Owning a home can be a costly experience. Not only do you have to cover your monthly mortgage payment, but you also need to factor in the expenses associated with maintaining and repairing your home as things break down.
A home warranty could help with some of these costs, such as the repair or replacement of certain appliances and home systems if they fail. It isn’t the same as homeowners insurance, which generally covers property damage and liability. Home warranties also aren’t required, unlike homeowners insurance for most borrowers with a mortgage.
Here’s what a home warranty covers, how much it costs, and whether it’s worth buying:
What Is a Home Warranty?
A home warranty is a service contract that covers certain appliances and systems in your house if they need repairing or replacing. The coverage may be limited, and the details can vary based on the home warranty company, the specific plan you choose, and your location.
Generally, home warranties cover some combination of:
- Heating and cooling systems.
- Electrical systems.
- Plumbing systems.
- Kitchen appliances, such as refrigerators, stoves, and dishwashers.
- Laundry appliances, such as washers and dryers.
- Water heaters.
- Roof leaks.
- Other items, such as ceiling fans.
How Much Does a Home Warranty Cost?
The average home warranty cost is $400 to $550 per year, according to the National Home Service Contract Association.This comes out to about $33 to $46 per month.
However, the annual or monthly cost of a home warranty isn’t the only expense you must consider. How much do home warranties cost if you need to file a claim?
If a covered appliance or system in your home fails, the home warranty company will contact a technician in its network to perform the repair. You’ll pay a service fee when the contractor visits your home.
The cost of the service fee can vary depending on your plan and home warranty company. For example, American Home Shield allows you to choose the amount when you purchase home warranty coverage, with higher trade service call fees corresponding to lower monthly plan pricing — similar to an insurance deductible. Home Security of America, on the other hand, determines the service fee based on the product and your location.
Is a home warranty a one-time payment?
Typically, home warranties are renewable annual or monthly contracts. How the contract is paid for also depends on who’s paying for it.
If you’re buying a house, the seller could purchase a home warranty on your behalf or have existing coverage that transfers to you at closing. In those cases, the seller’s one-time payment is due when you close on the home.
However, if you’re a homebuyer or homeowner purchasing a service contract, then you’ll pay for it on an annual or monthly basis.
Benefits of Purchasing a Home Warranty
Here are a few reasons why you might consider getting a home warranty.
Old appliances and systems could be covered
If you have or are thinking about purchasing an older home, keep in mind that the appliances and systems might be outdated. With certain home warranty plans, the age of your appliances and systems doesn’t matter, as long as they are working properly when your coverage starts.
You may feel more secure in your home purchase
Even after a home inspection, you might not find out the condition of various appliances and systems in the property. For instance, according to the American Institute of Inspectors, a home inspector isn’t required to evaluate microwave ovens or trash compactors, unless the state mandates it. A home warranty could provide some peace of mind that you have a safety net if a covered item breaks down.
Unexpected repairs would have predictable costs
Calling a technician out to your home can be nerve-wracking. Will they say that the problem is minor, or are you facing a repair bill that could cost you thousands of dollars? And how much will the technician charge just for the service call?
If you have a home warranty, then your out-of-pocket expenses can be more predictable. In addition to the annual or monthly cost of the service contract, you would pay the fee for the technician’s visit, along with any costs that aren’t covered by your plan. If a repair or replacement is needed, your home warranty spells out how much the plan will contribute, and what your portion of the bill looks like.
Getting a Home Warranty Quote
Homeowners can buy a home warranty at any time. Before making the purchase, it’s helpful to get a quote. The process generally involves providing your contact information, the location of your home, and details about your property, and deciding what coverage you’re seeking.
Home warranty companies
Here’s a sampling of home warranty companies and what their plans offer to qualified homeowners:
Home Warranty Companies
|American Home Shield
|Starts at $39.99 per month
$75 to $125
|Coverage for breakdowns due to lack of maintenance, improper installations or repairs, and duplicate items
|Select Home Warranty
|Starts at $36 per month
|Roof coverage included at no additional charge; two free months when billed annually
|First American Home Warranty
|Starts at $30 per month
|Provider has been in business for over 35 years
|Choice Home Warranty
|Starts at $1 per day
|Large national network of contractors
Tips for Buying a Home Warranty
If you’re considering a home warranty, here are some tips to keep in mind before buying.
Factor in the age of your home appliances and systems
If your home was built recently or you have new appliances and systems, it might not make sense to purchase a home warranty.
“A home warranty does not make sense when it comes to new construction,” says Chad D. Caplinger, a real estate financing advisor at Real Estate Bees, a real estate platform, based in Oklahoma City. “Your builder will be supplying you with a home warranty that covers the first year(s) anyway.”
If you have new appliances, they’ll be covered by the manufacturer’s warranty for a year or so.
Take some time to shop around before choosing a home warranty company and a specific plan. This allows you to find the plan that best fits your budget and addresses your biggest concerns about your home.
Consider the mileage you’ll get from a home warranty
If you’re a new homeowner, you might not have a network of trusted contractors established yet. A service contract could be a valuable resource in this situation, since home warranty companies will provide a technician if a repair is needed.
A home warranty could also help you save money if a covered appliance or system breaks down.
“I bought a home several years ago that had older appliances, including a double oven,” Caplinger says. “The ‘self-cleaning’ mechanism wouldn’t lock and, due to its age, it was easier to replace the whole oven. My $600 investment in a home warranty allowed me to get a new $1,600 double oven, which added value … and allowed for Thanksgiving dinner that year!”
Is a Home Warranty Worth It?
A home warranty won’t solve all of your repair issues, and it can’t keep unexpected expenses from cropping up. However, for many homeowners, these plans can be well worth the expense.
Here are some questions you may want to ask yourself before purchasing a home warranty:
- What is my experience level? For many first-time homebuyers, the idea of handling repairs can be overwhelming. A home warranty could help simplify the process. With that said, if you’re handy around the house, these plans may be less useful.
- Do I have a trusted network of contractors? Home warranty companies typically require you to use their contractors when you request a service call. This means you might not be able to hire your favorite contractors — or, if you need help finding someone, you’ll save time from not having to do your own research.
- What can I afford? Could you cover the unexpected expense of a broken dishwasher or a roof leak? If your emergency savings fund is small or nonexistent, a home warranty may offer peace of mind when an appliance or system fails.
- How likely are my home appliances and systems to break? If your home is full of new purchases under the manufacturers’ warranties, a service contract might not be as valuable. However, if your house has old appliances and systems, a home warranty could help you save money if something malfunctions.
- Can I get a home warranty for free? If you’re buying a property and the seller offers a home warranty, it makes sense to accept. “A home warranty is nice to have when you purchase a home and is customarily paid for by the seller,” says Doug Perry, a strategic financing advisor at Real Estate Bees based in Orange County, California. “They provide a level of comfort for both seasoned and new homeowners. And since the decision to get a warranty often depends on the costs of the policy and the coverage, it is advantageous for the buyer when it is paid for by the seller.”
The Bottom Line on Home Warranties
A home warranty can offer greater peace of mind for homebuyers and homeowners alike. If a covered appliance or system fails, these plans generally kick in to cover the lion’s share of the repair or replacement costs. While home warranties won’t get rid of all repair expenses, they can be worth the cost in the right situation.