Are home warranties worth it? What to consider

Home warranties can be a smart financial safety net—or an unnecessary expense. These service contracts protect you against unexpected repair bills for major appliances and home systems, covering costs that regular wear and tear might otherwise leave you paying out of pocket. The real question is whether the potential savings justify the annual cost. Read on to discover if a home warranty makes sense for your situation.

Key takeaways:

• A home warranty is often worth it when likely repair costs exceed your annual premium and service fees.
• Home warranties make the most sense for older homes with aging systems and appliances or for homeowners who want predictable repair costs.
• Before buying a home warranty, check the fine print: payout limits, exclusions, maintenance requirements, and the claims process. These details can determine how much real value you’ll get from the contract.

What does a home warranty cover?

A home warranty typically covers home systems, appliances, or both. Let’s break down each.

Commonly covered systems and appliances

Commonly covered systems include:

• Plumbing
• Heating system
• Air conditioning (AC)
• Electrical system
• Ducts

Commonly covered appliances include:

• Refrigerators
• Dishwashers
• Ovens and stoves
• Built-in microwaves
• Washers and dryers
• Ceiling fans or exhaust fans
• Garbage disposals
• Garage door openers

Common exclusions and limitations

That said, a home warranty won’t cover your home’s structure, foundation, walls, or workmanship. Furthermore, it won’t even cover home appliances and systems if:

• They aren’t specifically listed in the contract.
• The breakdown results from a problem that predates the contract.
• The breakdown results from anything other than regular wear and tear.
• The item was modified or installed incorrectly.
• You made the problem worse by trying to fix it yourself.

Home warranty vs. homeowners insurance

It’s also important to distinguish a home warranty from homeowners insurance.

A home warranty covers a home’s internal systems, appliances, or both against regular wear and tear. By contrast, homeowners insurance protects a home against weather damage, loss of personal belongings, and liability if someone gets hurt on your property.

Both have their place, with home warranties often filling gaps in home insurance coverage.

When is a home warranty worth it?

Consider getting a home warranty in the following scenarios.

If you have older systems or appliances

Older systems and appliances tend to break down sooner. If you know yours are outdated, a home warranty could give you peace of mind and even save you money if the repair costs end up being more than your warranty premiums and service fees.

If you want predictable repair costs

Repairs can be unexpected and expensive. If you want to avoid costly surprises, a home warranty can be a great option because it effectively spreads these costs over the year in even, fixed payments (though you may still need to pay a service fee for each technician visit).

If you do not want to manage repairs yourself

Some homeowners may opt out of a home warranty thinking they can handle repairs on their own. However, DIY projects can be risky and may result in a botched job. A home warranty helps guarantee professional work, saving you time and headache.

When is a home warranty not worth it?

Of course, a home warranty isn’t for everyone. Here’s when it may not be worth it:

If you can self-insure with savings

With enough savings, you can potentially cover any system or appliance repairs on your own. That way, you save on premiums and only pay for repairs when you actually need them.

If your home or appliances are new

The newer your home systems and appliances are, the less likely they are to break down. Consequently, a home warranty for a brand-new home is likely overkill. You may end up never taking advantage of the warranty but still pay premiums.

If older parts may be obsolete

If you buy a home with older parts that may be obsolete, the home warranty provider may not be able to fix them when they break down. Instead, they may offer to replace the broken appliance or system but only up to its depreciated value, requiring you to pay the difference.

Home warranty pros and cons

Before getting a home warranty, weigh the pros and cons:

Pros

• Potential savings: If you end up needing one or multiple covered repairs, a home warranty could save you money in the long run.
• Convenience: A home warranty saves you the hassle of collecting contractor quotes or tinkering with repairs yourself.
• Peace of mind: A home warranty spreads the cost of covered repairs evenly across the year, so you don’t have to worry about unexpected expenses.

Cons

• Service fees: Home warranties require you to pay a service fee every time a technician visits, even if they determine they can’t fix the problem.
• Coverage limits and exclusions: Many home warranties will only cover up to a certain dollar amount and exclude coverage in certain scenarios (like when they determine you didn’t properly maintain the system or appliance).
• Limited control: You’ll be forced to use contractors selected by the home warranty provider, not the ones you’d choose.
• Potential delays: Technicians may not respond to your work order quickly, requiring you to temporarily go without a functional home system or appliance.

What to check in the fine print before buying

Carefully review a home warranty’s fine print, including:

Payout limits and replacement costs

Some home warranties have a payout limit, which is the maximum the provider will pay during the service agreement (usually 12 months). Furthermore, the home warranty may stipulate a maximum replacement amount per item.

Exclusions and maintenance requirements

Many home warranties exclude coverage under certain circumstances, such as when an oven stops working during self-cleaning mode or if it’s damaged by a power surge. Furthermore, the home warranty provider may withhold coverage if it determines that you failed to properly maintain or install an appliance. Verify all exclusions and maintenance requirements upfront.

When coverage starts and how long it lasts

Most home warranties last for a year with the option to renew thereafter. Verify exactly when coverage starts and ends so you know what to expect.

How to choose a home warranty company

When evaluating a home warranty provider, make sure to:

Compare reviews and complaint patterns

Read online reviews to see what past and current customers have to say about the home warranty company. Then check with your state attorney general's office and the Better Business Bureau website to see if there are any complaints against the company. This helps you judge its reputation and whether you want to work with them.

Confirm coverage limits, fees, and add-ons

Learn exactly what the home warranty contract’s coverage limit is so you know your maximum payout. Then confirm any service fees or other fees. Finally, see what add-ons the home warranty provider offers, such as coverage for spas, septic tanks, well pumps, etc.

Ask how claims and contractors are handled

Make sure you understand how to file a home warranty claim with the provider and how long you should expect to wait for technicians to arrive. A clear process and expected response time can put you at ease, while too many steps or vague timelines may be a red flag.

Alternatives to a home warranty

Not sure if a home warranty is for you? Consider these alternatives:

Build an emergency fund

Instead of paying home warranty premiums each month, why not put the money into an emergency fund? That way, you can potentially save the money if you don’t need repairs and use it for unexpected expenses not covered by the home warranty.

Use manufacturer or builder warranties

Some appliance manufacturers and home builders offer their own warranties. If so, a home warranty could be redundant. Check with your builder and appliance manufacturers to find out.

Keep up with routine maintenance

While you can’t eliminate the risk of home systems and appliances breaking, you can minimize it with routine maintenance, making a home warranty less valuable.

Explore home equity loans and grants

For larger repairs, you may want to consider a home equity line of credit (HELOC), a home equity loan¹, or home improvement grants, if you qualify. Rocket Mortgage does not offer HELOCs currently but we’re here to help you consider options.

FAQ

Here are answers to some frequently asked questions regarding home warranties:

What are the disadvantages of home warranties?

The biggest disadvantages of home warranties are their coverage limits and exclusions, service fees, and the limited control they provide over which contractors are used.

Are home warranties transferable to new homeowners?

It depends on the contract. Check with your home warranty provider to see if the home warranty is transferable to new homeowners.

What is the average cost of a home warranty?

The average cost of a home warranty ranges from $350 to $900 per year.

Is a home warranty worth it for HVAC?

It can be, especially if your HVAC is outdated or you prefer predictable costs and not having to handle repairs yourself. However, a home warranty may not be worth it for HVAC if the system is new or you have ample emergency savings to cover a repair.

Can I purchase a home warranty at any time?

Yes, but you can’t get one and expect it to cover pre-existing issues.

Is a home warranty required?

No, unlike homeowners insurance, home warranties aren’t required by most lenders.

The bottom line

Home warranties can be helpful, especially when you have older systems and appliances, limited emergency savings, or a preference for predictable repair costs. However, you should carefully review the monthly premium cost, service fees, payout limits, exclusions, claims filing process, and alternatives before deciding to buy or skip a plan.

If you’re shopping for a house, you can pre-qualify for a home loan with Rocket Mortgage.

¹Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.