UPDATED: May 1, 2023
Homeownership has plenty of advantages. But one of the biggest downsides is that anytime something goes wrong, you’re on the hook for it. And an unexpected home repair can easily cost thousands of dollars.
That’s where home warranties come in. These plans serve sort of like an insurance policy, but only on certain appliances and systems within your home. If something goes wrong that’s covered by your home warranty, the warranty foots the bill.
Of course, home warranties may not be right for everyone. They’re an added cost that doesn’t necessarily cover everything in your home. In this guide, we’ll help to decide whether one is right for you by answering the question of whether home warranties are worth it.
A home warranty, similar to a home service contract or home service plan, is an optional contract entered into by the homeowner that offers home appliance or home system repairs and replacements in exchange for a monthly recurring fee.
Covered appliances and services may include your washer and dryer, refrigerator and other kitchen appliances, furnace, HVAC, plumbing, electrical system and more.
When something breaks down in your home and it’s covered by your warranty, you’d file a claim to have it repaired or replaced. And just like insurance policies, you may have to pay a service fee before the warranty covers the rest.
A home warranty is a different type of coverage than homeowners insurance or mortgage insurance, which cover different aspects of your major investment.
Unlike home warranties, homeowners insurance is required when you buy a home using a mortgage loan. It’s often rolled into your mortgage payment and into an escrow account, but some plans may allow you to pay annually in advance for a discounted rate.
Homeowners insurance covers unexpected events that cause damage to your home, such as a tree falling onto your roof and the resulting repair costs.
The key difference between a home warranty and a homeowners insurance policy is when they apply. A homeowners insurance policy doesn’t cover wear and tear of your home’s appliances and systems. Instead, it covers unexpected disasters. So, it wouldn’t apply if your washing machine broke down, but it would apply if that same washing machine was damaged in a fire.
Homeowners insurance also covers liability, which would apply if your dog bites the mail person or someone is injured on your property. Additionally, homeowners insurance covers potential vandalism or theft on your property.
Home warranties, on the other hand, cover anticipated repairs and replacements that need to be made throughout the lifecycle of your home systems and appliances. This usually includes normal wear and tear, however, it’s important to read all the fine print and reviews of your home warranty to be sure it covers what you expect it to.
Home warranties can save you money on certain repairs and replacements in your home, but they may not be right for everyone. There are a few things to consider when deciding whether a home warranty will be worth it for you.
First, let’s discuss some of the major appliances and systems that may be covered by a home warranty.
Appliances Covered Under Home Warranties
The following appliances are often covered under home warranties:
Systems Covered Under Home Warranties
The following systems are often covered under home warranties:
While it’s important to talk about what a home warranty does cover, it’s just as important to discuss what it doesn’t cover. The following are just a few common things your home warranty will not likely cover:
Home warranties have some key advantages but also some downsides worth considering.
Here are some of the advantages of having a home warranty:
Here are some downsides of home warranties:
A typical home warranty costs between $300 and $600 per year, which comes to between $25 and $50 per month. Of course, this is usually the cost of basic coverage. Many warranty companies also offer more comprehensive plans, which can add anywhere from $100 to $500 to your annual costs.
Of course, the monthly cost of a home warranty doesn’t necessarily include all your costs. When you file a claim, you’ll usually have to pay a service fee. This service fee is similar to the deductible you might pay for other types of insurance, and it usually costs between $50 and $100 per visit.
If you’re a new homeowner still learning about the costs of maintaining a home, you may benefit from the peace of mind that a home warranty plan offers.
If you bought an older home that has significant wear and tear and appliances that are mid-to-late stage in their life cycle, then you may bank on them needing significant repair or replacement and decide that the cost of a home warranty is worth the investment.
On the other hand, if you’re buying a brand-new home where everything inside is under warranty for a certain period, then a home warranty might be redundant.
A thorough home inspection should uncover any major concerns about the condition of your home, its appliances, its electrical, plumbing and HVAC systems. This would be the time to potentially negotiate a one-year home warranty with the sellers in the form of a seller concession.
On the other hand, if you’d prefer to have the home move-in ready, you may opt to negotiate other terms instead, such as requesting the seller fix or replace items that may be on their last legs.
Are you considering purchasing a home warranty? Here are a few more things you should know.
A home warranty isn’t necessary in the same way that homeowners insurance is. However, it can significantly reduce your maintenance costs, especially when expensive repairs come up, or an appliance needs to be replaced. Only you can decide whether it’s the right move for you.
Home warranties generally don’t cover preexisting conditions. If you purchase a home with a refrigerator that doesn’t work, you won’t be able to buy a home warranty and then file a claim for it. However, home warranties may cover preexisting conditions that were undetectable.
There are many companies on the market that offer home warranties. Here are some of the best home warranty companies to consider:
Buying a home is a huge investment, and chances are that you want to protect that investment in every way you can. A home warranty can help you do just that by covering costly repairs and replacements for the various appliances and systems within your home.
Of course, buying a home warranty comes much later in the home buying process. If you’re ready to start that process, reach out to Rocket HomesSM and connect with a Verified Partner Agent to learn more about buying a home.
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