Mortgage 101: What's a Home Warranty? And Do You Need One?

Posted by Laine Smith on 2/9/16 10:59 AM

Topics: Home Buying

Buying a home is likely the largest purchase you will make in your lifetime. Protecting your home and your checkbook is a high priority for homeowners, so when buying your first home, is a home warranty worth the investment?


What is a home warranty?

Home warranties are sometimes offered by home sellers or negotiated by buyers to insure items within a home for a limited time after the sale of the home is complete.

For example, a pipe bursts shortly after you purchase your home. While your homeowners insurance (hazard insurance) may cover the costs to replace flooring, walls, or any other things damaged by the water leak, a home warranty would potentially pay the costs of having the pipe and plumbing repaired.

Home warranties are additional and completely optional for homebuyers.

What do they cover?

Coverage varies from company to company, but typically, home warranties protect homebuyers or homeowners for repair costs of:

  • Kitchen appliances (range, oven, dishwasher, built-in microwaves, etc.)
  • Garbage disposals
  • Sump pump
  • Water heater
  • Heating, cooling and electrical systems
  • Plumbing
  • Washer and dryer units
  • Roof leaks

Home warranty companies typically have their own repair team or contract service companies in your area to perform repairs for claims made. You will not get to choose your service technician.

How much do they cost?

The average home warranty ranges from $350 to $600 for a basic warranty. Keep in mind that most warranties require the homeowner to pay the cost of a service call (generally from $50-$75) and if the warranty covers the item to be fixed, the warranty will pay for the cost of repairs.

What should I look for in a home warranty?

Whether the warranty is purchased by the home seller or you chose to purchase on your own, make sure to read the contract carefully. Read the fine print of the contract to gain knowledge of what it actually covers. Look for a policy that spells out:

  • The warranty term
  • The names of those protected by the warranty
  • An explanation of how to file a claim
  • Clear descriptions of what is and isn't covered
  • Any deductibles or other fees homeowners are responsible for, other than the cost of the policy
  • Clear explanation of who can and will make repairs when you file a claim

Should I get a home warranty?

As mentioned previously, home warranties are optional. A home inspection may give you insight on the operating condition of certain systems in the home you are purchasing but it won't predict when your A/C unit is going to give out.

If you purchase a home warranty for $600 and you file a claim that results in $3,500 worth of repairs, your home warranty has paid for itself. In these cases, home warranties can be a good option for buyers purchasing older homes with older appliances and systems or for first-time homebuyers who have limited cash reserves to spend on a major home system failure.

As with any legal contract, make sure you read the terms and conditions of your warranty, especially if you (instead of the seller) are making the investment to purchase it.

Talk to your real estate agent about their opinions on home warranty companies in your area, especially if you, as the buyer, are wishing to purchase one.

For more information about financing and purchasing your first home, download our free Mortgage 101 Handbook.

Download: Mortgage 101 Handbook

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