What is a home warranty?

Woman repairing a dishwasher covered by a home warrantyImage: Woman repairing a dishwasher covered by a home warranty

In a Nutshell

A home warranty may cover the cost to repair or replace certain items like appliances or your home’s systems. We’ll examine how home warranties work and how they differ from builder warranties for new construction homes.
Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

A home warranty is an optional service contract that covers replacements and repairs in your home.

Many major purchases, including cars, appliances and houses come with the option of a warranty — an agreement offering a form of protection for the home or items in the home you’re buying for defects or other issues covered in the policy.

There are different types of warranties that cover different items in your home in varying degrees. The one you want may depend on the nature of the coverage.

What does a home warranty cover?

A home warranty is a service agreement that covers replacements and repairs on items in your home, such as appliances or your HVAC system. This type of protection may be limited — only part of the product may be covered, and the coverage may be similar or identical to the warranty that came with an individual appliance.

You’ll want to make sure that if you purchase a home warranty, you’re not paying twice for the same coverage. And keep in mind that a home warranty is not a replacement for a homeowners insurance policy, which pays for unexpected damage or loss from issues such as fire or theft.

Is a service contract the same as a warranty?

Home warranties and service contracts are sometimes called the same thing. They may be referred to as “extended warranties,” but there are differences between these types of coverage and a builder warranty.

For example, a builder warranty may automatically come with a newly built home, but a service contract usually costs extra and is something you choose to purchase. That’s true of home warranties for existing or older homes.

A service contract may cover items in your home, such as appliances or an air conditioning system, for a specific length of time. This differs from a builder warranty, which generally covers the construction, materials and permanent features of the home.

What does a builder warranty cover?

If you’re buying a newly constructed home or one that has recently been remodeled, a builder warranty may be included in the purchase. Builder warranties typically cover parts of the home that are permanent, like concrete floors, electrical work or plumbing. Builder warranties usually don’t cover household appliances like ovens, dishwashers or garbage disposals.

Builder warranties don’t last forever. They have limited durations and typically come in one-year, two-year or 10-year options. The protections may depend on the nature of coverage.

For example, a one-year builder warranty may typically cover materials and workmanship. A two-year warranty may cover plumbing, electrical systems and heating/air conditioning. A 10-year warranty may offer protection against major structural defects in the home.

Is a home warranty worth it?

If you’re buying a newly built home, chances are it will come with a builder warranty covering the permanent parts of the home. But even if your home is new or newly remodeled, or if you’re buying an older home, you may want to weigh the pros and cons of an additional home warranty or service contract.

Because home warranty coverage is an additional expense, it’s important to study the terms of the contract and decide whether the benefits outweigh the costs. Here are some things to consider.

Is a home warranty required?

There are some instances in which a home warranty contract is required. For example, if you buy a newly constructed home using an FHA loan or VA loan, there must be a one-year warranty. In general, this warranty must cover against defects or poor workmanship from a builder, supplier or contractor.

What does a home warranty cover?

You may find that some home warranties give you the same protection you get from the warranty on an individual product. For example, home warranties typically cover the cost of maintaining or replacing items such as appliances.

If your refrigerator, washer, dryer and air conditioner are all under a manufacturer’s warranty, it might not make sense to pay for a home warranty that covers the same features in the home for the same length of time. It’s also worth checking the home warranty to see if it cover repairs or a full replacement for these items.

What are the coverage limits?

Many extended warranties and service agreements have exclusions. For example, a warranty may cover electrical components in your home, but exclude certain systems like telephone wiring, lighting fixtures or wiring for a security system.

These warranties may also only cover your systems under certain conditions, like wear and tear, and not for accidental damage. Finally, if your claim may be denied for not following the manufacturer or company rules about routine maintenance.

What is the claims process?

If you’ve ever filed an insurance claim, you’re likely familiar with how complicated and time-consuming the process can be. You’ll want to take into account how much time it takes for a claim to be approved, how long it takes for the repair or reimbursement and who is responsible for making the repair.

Generally speaking, the home warranty claims process starts by determining whether your claim is covered by your contract. Depending on your agreement, you may have a waiting period of up to 30 days after purchasing your home warranty before you can request service.

You’ll need to contact your service provider and request service or claims assistance. And when you file your claim, be sure to keep a copy for yourself in case there’s a problem later.

How much does a home warranty cost?

The cost of a home warranty depends on the provider, your location and your level of coverage. Some estimates put the average home warranty plan between $300 and $600 a year, with some costing up to $1,000. And while home warranties may cover some costly repairs, they probably won’t cover everything. You’ll likely have to pay service call fees, which can be as much as $100, for each incident.

How much would the repairs cost out of pocket?

It’s a good idea to shop around and determine how much various repairs would cost — in terms of money, but also time and hassle — if you were to pay for them out of pocket or choose a home repair loan. You may find that putting money into a savings account or emergency fund for future home repairs is a better option for you.

Next steps

If you’re reviewing your homebuying options, there are many things to consider. Choosing to pay for a home warranty may provide peace of mind that you won’t have to pay out of pocket for costly home repairs.

But not all issues are covered by these warranties, so make sure you understand the types of coverage provided in your home warranty or builder warranty — and what to expect when you file a claim.

To learn more about home warranties, and what requirements may be relevant to you, the Federal Trade Commission suggests reviewing your state builder’s board or other state-level certifying agency.

About the author: Sarah Sidlow is a freelance writer and editor based near Detroit. She has a master’s degree in journalism from Georgetown University. Sarah’s work has appeared in Luxembourg’s national newspaper, Washington City Paper… Read more.