What Is A Home Warranty And How Much Does It Cost?

When you own a home, you’re financially responsible when something breaks. One way to protect your wallet is to purchase a home warranty.

We’ll share everything you need to know about home warranties, including how they work and whether the cost of a home warranty is worth paying.

A home warranty is an annual contract that covers the repair or replacement of major appliances and home systems. A service contract can pay for critical home systems, like HVAC, plumbing and electrical, and covers specific home appliances, like water heaters, garbage disposals, washers and dryers.

Home Warranty Vs. Home Insurance

While a home warranty might sound like a homeowners insurance policy, it’s a different type of coverage. Home insurance covers damage to a house’s structure, protects your belongings in case of theft or loss and can cover the expense if someone gets injured on your property. A home warranty covers the replacement or repair of indoor appliances and systems due to normal wear and tear or manufacturing defects.

You must follow a set process to submit a claim with your home warranty service provider. If a covered appliance or system breaks down, here’s what you should do:

1. File a service request claim: Contact the home warranty company to alert them to the issue. Tell them whichappliance(s) or system isn’t working and provide the unit’s manufacturer.
2. Schedule an appointment: The home warranty company will select a third-party service provider in their partner network to contact you. Some companies even allow you to choose your service provider.
3. Repair or replace the appliance or system: The service provider will come to your home to diagnose the problem. The home warranty company will either pay for repairs (parts and labor) or the replacement of the item.
4. Pay your trade call fee: This service fee operates like a deductible for your home warranty policy. You pay it eachtime you file a claim. If the repair costs less than the fee, you’ll only pay the repair cost.

Home warranty companies offer a variety of plans and coverage levels. The plan you select will depend on your home and personal needs. In most cases, you’ll encounter three types of home warranty plans:

• System plans: This plan only covers specific systems in your home. For example, if you get HVAC coverage, the plan will protect your air conditioning unit or furnace, but not smaller appliances, like a space heater.
• Appliance plans: This plan exclusively covers appliances. Refrigerators, ranges, built-in microwaves and garage door openers fall into this category.
• Combination plans: As you’ve probably guessed, this plan will pay when a covered home system or appliance breaks down.

You can also pay for optional warranty add-ons. This additional coverage can be beneficial if you have a pool, hot tub, well pump or other complex home systems.

Some plans don’t include home features such as a property’s exterior, windows, walls, floors or sprinkler systems.

If some appliances are too old, in poor condition, incorrectly installed or aren’t adequately maintained, they may be ineligible for coverage.

Home warranty cost depends on several factors, including a home’s location, the selected coverage plan and its service fee.

Some companies let you customize your premium and service call fees based on an estimated number of claims. To get the best plan at the best price, shop around and collect home warranty quotes from multiple reputable home warranty companies.

*Note: Premiums typically vary based on the plan selected, home location and service fees.

Most warranty providers sell different plans with different coverage levels and costs. In most cases, the annual average cost of a home warranty ranges from $350 to $700, making the average monthly payment around $30 – $60.

You should also expect to pay a service fee of around $75 – $125 each time a technician visits your home. The benefit of a home warranty plan is that you can avoid the financial stress of paying for an unexpected or expensive repair out of pocket and enjoy the financial stability of a manageable deductible toward service costs.

Home warranty plans can have advantages and disadvantages. Let’s look at the main advantages of home warranties.

Peace Of Mind

You can relax knowing your home warranty coverage protects your essential appliances and home systems, which can be especially helpful for first-time home buyers who aren’t used to dealing with repairs and may not have the cash reserves to pay for them.

Fewer Unanticipated Costs

You won’t need to deplete your emergency fund to fix or replace a covered appliance or system. In many cases, you can predict what a broken stove or air conditioner will cost. Because some companies cover preexisting issues, you may be able to calculate your warranty savings in advance based on what you know needs to be fixed.

Because pros and cons will vary based on a client’s location and a plan’s terms, it’s critical to read through all plan documentation. We’ve outlined some factors to consider before deciding whether a home warranty plan is right for your home.

Not Everything Is Covered

Your home warranty plan won’t cover everything. If your television stops working or your front door is damaged, you’ll need to use other coverage or pay to fix it out of your wallet.

Coverage Limits Per Repair

Even if an item is covered, the home warranty company will likely set a dollar limit on repairs. So, if the company can’t fix, let’s say, your super-fancy six-burner gas range, they may pay only enough to install a cheaper stove with fewer features.

Premium Costs

You may pay premiums for years and never make a claim, likely leaving you to wonder whether investing in a policy was worthwhile.

Waiting Periods

There’s typically a 30-day waiting period before coverage goes into effect. The goal is to prevent clients from purchasing a plan to cover existing problems in a home. If your freezer breaks down on Monday, you can’t buy a plan the same day and then file a claim on Tuesday.

Current Customer Reviews

You should carefully research a prospective service provider before signing a warranty contract. Testimonials and reviews are an excellent way to learn more about a company’s coverage options and customer service.

Let’s answer some frequently asked questions about home warranties.

What is a home buyer warranty?

A home buyer warranty is specifically for new homeowners who may not know the condition of their house’s systems and appliances. This policy also covers misuse or deferred maintenance by the seller.

Am I required to have a home warranty?

Lenders don’t require home warranties to qualify borrowers for a mortgage. However, consider purchasing a home warranty plan depending on your savings, ability to repair appliances and the age and condition of your home systems.

How much does a home warranty cost per month?

What you pay will depend on the home warranty provider you choose and your coverage plan, but a standard home warranty contract costs an average of $30 – $60 per month.

What’s the difference between home warranty and home insurance?

A home warranty covers the repair or replacement of home systems and appliances. Homeowners insurance covers the cost of damage to your home and its associated structures, theft or loss and lawsuits or claims against your property. Mortgage lenders typically require home insurance, and home warranties are optional.

How do I know if I already have a home warranty?

Have your real estate agent ask the seller if the property has an existing home warranty. If there’s no warranty, try negotiating with the seller to have them purchase a policy before closing.

When can I purchase a new home warranty?

You can typically purchase a new plan at any time, but it’s common for new homeowners to get coverage within 30 days of closing.

If there is a preexisting plan and it’s approaching the end of its coverage year, decide whether to stick with the current company, shop around for another provider or ditch coverage altogether.

Are home warranties worth the cost?

The value of a home warranty will vary from homeowner to homeowner. A home warranty can be worth the cost for first-time home buyers, homeowners on fixed incomes, homeowners who aren’t handy and homeowners working with tight budgets. The plan can act as a financial safety net when a major appliance or home system needs fixing or replacing.

A home warranty can protect your finances and offer peace of mind, but you’ll need to evaluate your needs and budget to see if coverage would be worth the cost. If you’re unsure whether the home’s appliances and systems are covered, see signs of disrepair, are on a tight budget or are new to homeownership, buying a home warranty may be worthwhile.

Are you crunching the numbers on your new house and a home warranty? Get expert advice and a reliable price range for your dream home. Start the mortgage approval process today with Rocket Mortgage^Ⓡ.