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What Is a Home Warranty and How Do They Work?

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What is a home warranty? When buying a home, you should know the answer to this question -- a warranty could potentially save you money and aggravation. Home sellers should also know how home warranties work. If you're a home seller, you might consider offering a home warranty to make your home more enticing. This guide will tell you what you need to know about home warranties.

What is a home warranty?

A home warranty is a service contract protecting you against unexpected repair expenses. Warranties can be purchased by homeowners, or sellers may include them to make a property more attractive.

Home warranties typically cover appliances and major systems in a home, such as the plumbing or electrical system. You can choose how comprehensive you want your warranty to be.

A warranty is optional, and distinct from homeowners insurance that protects against damage due to disaster or theft.

How do home warranties work?

Home warranties can be purchased from private companies and are in effect for a limited time, such as one year. At the end of that time, you may be able to renew coverage.

The specific warranty you buy determines what it covers. Generally, your agreement sets up a service contract to provide repairs if home components break. When something goes wrong with a covered item, the home warranty company will arrange repairs. You may have to pay for a service call or part of the fees of the repair, though, depending on the terms.

How much does a home warranty cost?

The price of a home warranty varies depending on the plan you choose. In general, a basic plan typically starts at around $300. More expensive plans could cost twice as much.

Who pays for a home warranty?

Home sellers often purchase home warranties that transfer to the buyer. Sellers do this to make the home more competitive. In this case, the seller covers the cost of the first year of the warranty.

Homeowners can also purchase and pay for a home warranty -- either when they first buy a house or at any time during ownership. If a homeowner buys a home warranty, they'll pay for the cost themselves.

Home warranty coverage

Coverage under a home warranty depends on the plan you choose and whether you add on riders. Beyond being able to answer the question, "What is a home warranty?" you'll also want to understand exactly what coverage your warranty offers.

What is covered by a home warranty?

When choosing coverage under your home warranty, you can usually find a warranty plan to cover:

  • HVAC systems
  • Electrical systems
  • Heating/cooling systems
  • Plumbing
  • Major appliances (refrigerators, ovens, and dishwashers)
  • A water heater
  • Furnaces
  • Ceiling fans
  • A garbage disposal
  • Septic systems

You can also purchase add-on coverage for:

  • Swimming pool equipment
  • Washer/dryer
  • Well pumps
  • A garage door opener

What is not covered by a home warranty?

To fully understand a home warranty, you also need to know what isn't covered. A home warranty generally excludes:

  • Problems caused by unusual usage
  • Improperly installed appliances
  • Pre-existing problems with the home
  • Appliances or systems that have not been properly maintained

Most also won't cover walls, your home's foundation, or sprinkler systems.

Who should buy a home warranty?

As a seller, you may want to buy a home warranty if you're competing with newer homes on the market. This will help ease the minds of potential buyers who fear your home may need costly repairs.

If you're a homeowner and don't want to worry about having to pay for a lot of routine maintenance, it can make sense to purchase a home warranty. Anyone getting a mortgage for first-time home buyers may be an especially good candidate for one since they may not realize how expensive it is to maintain a home.

If your budget may be stretched thin by housing costs, you may also want a warranty so the cost of repairs is more predictable. However, if this is a concern, it's possible your home isn't really affordable. Shop around for the best mortgage lenders to find the best loan rate. It's also helpful to use a mortgage calculator to ensure your payments are in budget. Reviewing our beginner's guide to mortgages can also help you determine how to save on loan expenses.

However, beyond asking, "What is a home warranty?" you'll also need to make sure you understand exactly what your warranty will cover. And remember, you'll likely have to pay for a service call and potentially some other costs for repairs even when you have a warranty.

When is a home warranty unnecessary?

A home warranty isn't necessary if you're purchasing a brand-new home. In most cases, the appliances will be under warranty from the manufacturer and your builder should warranty the home's major systems. You should find out what the builder's warranty includes before you decide to purchase one from an independent company.

If you can handle many routine maintenance tasks yourself, or want the flexibility to shop around among repair professionals, a home warranty also likely wouldn't make sense in your situation.

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FAQs

  • A home warranty is a service contract. When you purchase a home warranty, the issuing company agrees to provide repairs of appliances and other home systems. You'll pay only a pre-arranged service cost and other fees disclosed in your warranty contract if you require repairs.

  • A home warranty covers specific items in your home, such as major appliances, HVAC systems, plumbing, and sometimes even swimming pool equipment. The specifics of what your warranty covers depends on the terms of the policy you purchase. You can pay a higher cost for a warranty offering more comprehensive coverage.

    When you have a home warranty, you'll contact the warranty company when you need repairs. You'll generally pay a service fee, and potentially a portion of the repair cost, depending on your warranty terms. However, you'll have the peace of mind of knowing you won't face astronomical repair expenses.

  • You may need a home warranty if you're worried about paying when something goes wrong with your appliances or your home's major systems. A warranty doesn't mean repairs cost nothing since there's usually a service fee and other costs involved with each repair -- but you may not pay as much for fixes when something goes wrong.

    If you have a brand-new home or new appliances covered by a builder or manufacturer warranty, you don't need a home warranty.

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