Home warranty pros and cons

When you go through the homebuying process, odds are good you'll be asked if you'd like a home warranty. In the past, sellers commonly included a one-year home warranty to sweeten the pot for buyers. But with home sales through the roof and sellers getting multiple offers, sellers are including this benefit less often.

If the seller doesn't offer a warranty, it's OK to ask your real estate agent to request one. Having a home warranty can benefit buyers and sellers because it helps protect against unexpected costs and repair issues during closing.

You may have questions whether you know about real estate or you're a first-time homebuyer. These questions may include:

• What's a home warranty?
• Is it different than homeowners insurance?
• What does a home warranty cover?
• Should I get a home warranty?
• How much is a home warranty?

At USAA, we help you make informed decisions by giving you answers and resources. We help ensure that you have what you need for your coverage.

What's a home warranty?

A home warranty is a service plan that covers most parts and labor costs to repair or replace major household appliances and system components. Examples can include the furnace, HVAC, plumbing and electrical.

Is a home warranty the same as homeowners insurance?

No. While they both involve your home, they cover different needs. You file claims for major events like fires, hail, property crimes and certain types of water damage, along with the unexpected damage or loss of your home and personal possessions with your homeowners insurance. But it won't provide coverage if your air conditioner goes out in the heat of summer or if your water heater stops heating in the cold of winter. That's where a home warranty can pick up the coverage.

Think of it like this: A home warranty can give you the same financial peace of mind you may have had as a renter. This proves especially true if your house is older and the appliances are no longer under factory warranty. But instead of calling the landlord to come deal with costly repairs, you call the home warranty company.

What does a home warranty cover?

Typical systems and appliances covered by a home warranty include:

• Kitchen appliances like garbage disposals, built-in microwaves, ovens and refrigerators.
• Plumbing and electrical equipment and systems.
• Heating, ventilation and air-conditioning, or HVAC, systems.
• Water heaters, water softeners, washing machines and dryers.

Some companies offer options to add coverage for things such as:

• A pool, spa, outdoor kitchen or fountain.
• Clearing drains.
• Limited roof leak repair.
• External gas pipes, water pipes or slab leaks.
• Damage caused by improper installation or maintenance.
• Pre-existing conditions that weren't disclosed on a home inspection or by the seller.
• Smart home features.
• Limited pest control.

Typical things not covered by a home warranty include:

• Scratches, dents or other cosmetic damage to covered appliances.
• Damage from pests.
• Items covered by a manufacturer warranty.

How much is a home warranty?

The cost of home warranties varies based on the extent of your coverage. Most companies offer multiple options for coverage and price tags.

Yearly premiums. The average yearly premium ranges between $350 and $600, though some companies offer a monthly payment plan, usually from $25 to $50, so you can avoid writing a big check every year.

Service call fees. Expect to pay a deductible or service call fee each time a service technician comes to your home. This nonrefundable charge typically ranges from $50 to $125 depending on the home warranty provider. You may have to pay two separate fees if the issue requires more than one type of technician at your home.

Add-on coverage. If you have a swimming pool, spa, well pump or other home operating systems, you can customize your coverage to include them. Depending on what you add and how many, add-ons can increase your annual premium and monthly payments.

Are home warranties worth it?

A home warranty can be especially valuable when you're buying an older home. You don't know what you don't know, so having a home warranty in place for at least the first year can be a smart move while you see how the major appliances and systems hold up. For example, the home inspector checked the air conditioner on an older home in the winter. Inspectors don't check inaccessible attics, so they didn't see the torn ductwork. Later, you learn the air-conditioning ducts failed to cool parts of the home in the summer. The home warranty typically covers these repairs.

Older homes have history that may or may not be known to the seller and may not be discoverable by an inspector. A home warranty protects your finances from the surprises found during the first year in an older home.

If you buy a newer home and have cash set aside for maintenance, you may decide to skip the home warranty. Plumbing, electrical and HVAC systems usually get two years of coverage by the builder. If your home has warranties in place, you may not need another one. But damage from misuse or neglect by a previous owner may cause damage earlier than expected. If your finances are fragile, consider protection from unexpected repairs that newer homes sometimes require.

Pros of a home warranty

Repairs in your home can add up. A home warranty helps protect you from the stress and financial burden of dealing with unexpected repairs, especially as a new homeowner still getting to know the place.

Peace of mind. No one wants to pay a high bill for a major repair, especially if you just tapped into your savings to put the down payment on your home. If your new air-conditioner compressor breaks, the repair could cost thousands. A home warranty lets you push some of that major repair risk to a warranty provider.

No need to research. Say your electrical panel smokes, sparks and goes dead. A home warranty can save you the hassle and headache of Googling repair companies and getting quotes in the dark on your phone. A home warranty company has contractors on call to take care of the problem.

No pressure to be handy. If you're not comfortable making repairs yourself, you're not alone. We've all witnessed how a so-called simple do-it-yourself fix can turn complicated and costly quickly if you don't have the right tools, parts and know-how. A home warranty takes the pressure off you to do anything but make the call.

One-call convenience. When something in your house breaks, instead of worrying about next steps, you simply call the home warranty company. They'll do the research and send someone to diagnose, repair or replace the appliance or system that's not working correctly.

Cons of a home warranty

Though home warranties can cover a lot of repair expenses, they don't cover it all. And if you don't read the fine print to spot the loopholes, you could end up frustrated and out big bucks.

Fine-print loopholes. Home warranties offer value when they cover the repair or replacement you need.

• If you have an older home, there may be a limit to how much a home warranty provider will pay per incident.
• The home warranty company covers your appliance or specialized system, but it declines to pay because the appliance or system wasn't properly maintained.
• If your water heater goes out and the entire system needs to be brought up to new code standards, the costs could be significant. Your home warranty may not cover it all.

Service uncertainty. A warranty is only as good as the company that stands behind it. While some homeowners find their home warranty providers are responsive and professional, others feel disappointed with the speed and quality of work.

Less control. While a home warranty means you manage fewer details, it also means you have less control. The warranty company usually chooses who does the repairs, how the repairs get done or which model or brand replaces the old one. Usually, the value of the replacement equals your current item, but not always. Consider asking about paying the difference to upgrade the replacement.

Purchasing a home with a warranty

If the seller doesn't include a one-year home warranty, you can purchase a plan from your real estate agent at closing or directly from the company you choose.

If you decide to purchase a home warranty, do your homework. Unfortunately, you need to watch out for the real and present danger of home warranty scams (Opens in New Window).^{See note1} We share these tips:

• Research to find a reputable home warranty company that doesn't cut corners by using third-rate contractors that do shoddy repair work.
• Read the reviews. You want to make sure they pay for legitimate repairs or replacements and have happy customers to prove it.
• Check the fine print. Read the home warranty contract carefully, so you understand exactly what's covered and what you're paying for.

To help guide your decision, consider a home warranty's cost against the likelihood that a major repair would occur and how prepared you are to pay for it. Consider any other upcoming financial goals and whether your resources can meet those goals and handle unexpected repairs, too. Hear about first-hand experiences by talking with your real estate agent, friends and family about unexpected repairs and home warranty coverage.