Are Home Warranties Worth It?

By Bill Lyons | Published on October 6, 2023

Every homeowner knows the peace of mind that comes with insuring their property. However, beyond the typical homeowner’s insurance, you may want to consider another type of coverage—the home warranty.

Unlike homeowner’s insurance, a home warranty is a service contract that covers repairs and replacements of major appliances and home systems that break due to wear and tear. But what is a home warranty, and is it worth the price?

Keep reading to learn if home warranties are worth it by examining what they are and how they work.

What Is a Home Warranty?

A home warranty is a service contract that repairs and replaces many home systems and appliances when they malfunction or break due to normal use, also known as wear and tear. Unlike homeowner’s insurance, which provides coverage for unexpected damage, a home warranty focuses on the internal aspects of the home that deteriorate over time.

When an item covered under a home warranty breaks, the homeowner contacts the service provider. The warranty provider arranges for a technician or contractor to assess the issue. Then, if the item and issue are covered under the warranty, the provider covers the repairs or replacement.

Typically, homeowners pay an annual fee for the warranty coverage and any additional services for the repair visit.

The primary purpose of a home warranty is to protect homeowners from the unexpected expenses of repairing or replacing appliances or systems, especially for those who might not have an emergency fund or those in older homes.

Coverage for home warranties varies by provider and plan, but the typical policy covers the following:

• Kitchen appliances like refrigerators, stoves, and built-in microwaves
• Plumbing systems
• Electrical systems
• Heating and cooling (HVAC) systems
• Washers and dryers
• Water heaters

These warranties also come with exclusions. Items that might not be covered include:

• Those that haven’t been properly maintained
• Those that have been improperly installed
• Non-mechanical items like windows or doors
• Outdoor items like sprinkler systems
• Cosmetic issues like dents or scratches on appliances
• Items broken before the warranty was purchased

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What’s the Difference Between Home Warranty and Home Insurance?

When reviewing your first-time homebuyer checklist, you might realize you need home insurance, especially if you’re using a mortgage. Home insurance and home warranties offer homeowners peace of mind and financial protection. However, they cover distinct types of risks and have different purposes.

The main differences between a home warranty and home insurance include:

• Type of coverage: Home warranties focus on repairing or replacing home systems and appliances that break due to normal wear and tear, including HVAC systems, plumbing, and major appliances. On the other hand, home insurance covers damages and losses caused by unforeseen events like theft, storms, fires, and so forth. It typically covers structural damage and personal property inside a home.
• Purpose: Home warranties offer peace of mind, ensuring that if a major appliance or system fails due to age or wear, they won’t have to pay a hefty repair bill. However, home insurance protects homeowners financially from significant losses and damages to their home’s structure and personal property.
• Mandatory vs. optional: If you’re wondering, “Do I need a home warranty?” you might be happy to know that they’re completely optional for homeowners. However, home insurance is often mandatory if you have a mortgage since it helps lenders protect their investment.

What Are the Pros of Home Warranties?

While home warranties are optional, they can give homeowners peace of mind. The benefits of a home warranty include:

• Financial protection: The most significant advantage of a home warranty is its financial protection. Home repairs and replacements can be costly, so a home warranty shields homeowners from sudden, large expenses.
• Peace of mind: Knowing your home’s appliances and other systems are covered if they break can be a huge relief for homeowners.
• Convenience: If something breaks, you don’t have to search local directories for a reliable repair person. Instead, you can call the warranty provider, and they’ll handle the rest.
• Cost predictability: Instead of varying repair costs. homeowners with a warranty only need to cover the service call fee and items not covered in the contract, making household expenses more predictable.
• Increased appeal: Sellers can offer a home warranty as part of the sale package, making the property more attractive to potential buyers. This can give buyers confidence in their purchase during the first year of ownership.
• Potential savings: If multiple appliances or systems fail within a year, the savings from a home warranty can be substantial. Instead of paying out of pocket for each repair or replacement, the homeowner is primarily responsible for the service call fees.

What Are the Cons of Home Warranties?

While home warranties offer peace of mind and financial protection, they come with their set of drawbacks, such as:

• Limited scope of coverage: The warranty doesn’t cover everything in your home. Typical home warranties might exclude certain appliances or systems, and many don’t cover items that have been improperly installed or poorly maintained.
• Fees: Home warranties require homeowners to pay a service call fee whenever a technician comes out to diagnose or fix an issue. If you have multiple problems over the course of the year, these fees can add up.
• Lack of control: Since the warranty provider decides which contractor comes to your home, you might end up with a repairperson you wouldn’t have chosen.
• Claim denials: There’s a potential for claim denials if the warranty provider determines your covered appliances have not been properly maintained.

Should You Get a Home Warranty?

Are home warranty plans worth it? Whether you invest in a home warranty policy depends on individual factors, the home itself, and your preferences. While these policies can offer valuable cost savings and other benefits, they aren’t necessarily the right option for all homeowners.

Home warranties might be a good idea for:

• Older homes: If you move into an older home, its systems and appliances might be out of the manufacturer’s warranty and more likely to fail. A warranty can protect against costly repairs and replacements.
• Peace of mind: Some homeowners appreciate the peace of mind knowing they’re protected against unforeseen repair or replacement costs.
• Selling: If you plan to sell your home, you might offer a home warranty to make the property more appealing to potential buyers.

Again, a home warranty isn’t necessary for all homeowners. A home warranty might not be suitable for the following:

• Newly built homes: Appliances and systems in newly built homes are less likely to break due to wear and tear and typically have their own warranties.
• Homeowners with savings: If you have an emergency fund or savings for home repairs, you might prefer to self-insure against potential breakdowns.
• Overlapping coverage: If you already have existing warranties for breakdowns, you may not need the redundant protection of a home warranty.

When asking yourself, “Should I get a home warranty?”, a few factors to consider include:

• The age and condition of the home.
• The budget for repairs.
• Your own DIY skills.
• The overall cost of the warranty.

Ultimately, older homes showing signs of wear are more prone to breakdowns. However, a home warranty might not be worth it if you’re knowledgeable about home repairs.

At the same time, you should consider the contract details and its cost. Analyze the annual cost of the warranty against potential repair or replacement costs. In addition, read and understand what’s covered as part of the warranty to determine if it’s worth it for you.

While a home warranty can be a significant investment for homeowners, understanding the financial impact of every decision is crucial. If you own a vacation home or rental unit, you may want to calculate the ROI on a rental property to understand the potential savings this policy can offer.

Tips for Purchasing a Home Warranty

When considering a home warranty, making an informed decision is crucial to get the best value. If you’ve answered yes to “Are home warranties worth it?”, here are a few tips to ensure you pick the right plan:

• Research providers: Not all home warranty providers offer the same coverage. Exploring your options can help you find one with a good reputation and track record.
• Read the terms and conditions: Always read the fine print on your warranty contract to determine what’s covered or excluded and the payout limits. Understanding this information can help you determine whether a specific policy is truly worth it.
• Compare options. Home warranties come in different tiers or plans, each offering varying levels of coverage. Finding the right coverage for you will require you to consider the major systems and appliances in your home to ensure they’re protected.
• Understand the costs: Beyond the premium, you may have to pay service call fees and deductibles. You can ask the provider for a clear breakdown of all potential charges to help you gauge the actual cost of the warranty policy.

Final Thoughts

Investing in real estate also means investing in the home’s systems and appliances. When these items break, homeowners can face significant, unexpected costs that affect their financial health.

While a home warranty is optional, it may be beneficial depending on various factors, such as your preferences and the age of the property. If a seller offers a home warranty as part of the home purchase, the cost might be indirectly factored into the home’s price, potentially affecting closing costs for buyers.

Understanding homeownership goes beyond securing a favorable mortgage; it ensures the safety and security of your investment. When you partner with Griffin Funding, you align with experts who understand the full spectrum of homeownership challenges and opportunities. We don’t just facilitate the mortgage process; we guide you through it. Apply for a mortgage online today.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.