Is a Home Warranty Required?

Is a home warranty necessary?

Home warranties are not legally required when purchasing or owning a home. Unlike homeowners insurance, which most mortgage lenders require to protect their investment, home warranties are completely optional. No federal or state laws mandate home warranty coverage, and standard mortgage agreements don't include warranty requirements as a condition of loan approval.

However, home warranties are sometimes offered or negotiated during real estate transactions. Sellers may purchase a warranty as an incentive to attract buyers or provide peace of mind about the home's condition. Buyers can also choose to purchase their own warranty at closing or anytime after moving in.

Are home warranties required at closing?

Home warranties are not required at closing, and neither buyers nor sellers are obligated to purchase one. Sellers sometimes offer to pay for a home warranty as a selling point, or buyers may request one as a condition of their offer. Real estate agents sometimes encourage warranties because they can help facilitate smoother transactions and reduce post-sale disputes. You have flexibility to purchase coverage at closing or months after moving in.

How does a home warranty work?

A home warranty is an optional service contract that helps cover the costs of repairs and replacements on your home's systems and appliances when they break down from normal wear and tear. Unlike homeowners insurance, which covers damage from unexpected events like fires or storms, a home warranty specifically addresses mechanical failures and breakdowns that occur during everyday use.

When you purchase a home warranty, you'll typically pay a monthly or annual premium ranging from $40 to $60 per month or $450 to $600 per year, depending on your coverage level and location. When a covered item breaks down, you'll also pay a service fee (also called a trade call fee) each time you file a claim.

Filing a claim

When a covered system or appliance breaks down, filing a home warranty claim is typically straightforward. Here's how the process works:

1. Report the issue: Contact your warranty company by phone, online portal or mobile app to describe the problem with your system or appliance.
2. Technician assignment: The warranty company assigns a service technician from their network of preapproved contractors to diagnose the issue, usually within 24 to 48 hours.
3. Inspection and diagnosis: The technician inspects the item and determines whether the breakdown is covered under your plan.
4. Claim decision: If approved, the warranty company authorizes the repair or replacement according to your contract terms, and you pay your service call fee. If denied — often due to preexisting conditions, lack of maintenance or exclusions in your policy — you'll be responsible for the full repair cost.

Some companies allow you to choose your own contractor, but most require you to use their network providers to maintain coverage.

Waiting periods

Most home warranty plans include a waiting period of 30 days from your contract start date before coverage begins. This prevents homeowners from purchasing coverage only after something breaks. Some companies waive this waiting period for new home purchases or offer immediate coverage for an additional fee. It's important to read your contract carefully to understand when your coverage actually starts.

Service call fees

Each time you file a claim, you'll pay a service fee typically ranging from $75 to $125, depending on your warranty provider and plan level. This fee applies whether the item is repaired or replaced, and you may pay multiple service fees if several items break down simultaneously or if different systems require separate service calls.

Some premium plans offer reduced service fees or caps on the number of fees you'll pay annually. Factor these costs into your budget when determining if a home warranty provides good value for your situation.

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What does a home warranty cover?

Home warranties typically cover a wide range of systems and appliances and can be paid for at a monthly or annual rate. This coverage includes repairs and replacements for household appliances, such as dishwashers and ovens, and systems, such as HVAC, plumbing and electrical.

Home warranty companies usually offer multiple plans. For example, most companies provide an appliance plan, a systems plan and a comprehensive plan that combines both. Many home companies also have add-on options. This allows you to add more covered items for additional fees.

Typical systems and appliance coverage

Coverage varies by company and plan, but here are some items that home warranties commonly cover:

Coverage caps

While home warranties cover many systems and appliances, most plans include coverage caps that limit how much the company will pay for repairs or replacements. These caps typically range from $500 to $3,000 per item or incident, depending on your plan level. If repair costs exceed the coverage limit, you'll be responsible for paying the difference out of pocket.

For instance, if it costs $1,200 to repair your refrigerator but the coverage cap is $1,000, you would be responsible for paying the remaining $200. Weigh the annual premium and service fees against your potential repair costs to determine if a home warranty provides good value for your situation.

Exclusions

Home warranties also don't cover everything. Common exclusions include:

• Preexisting conditions: Issues that existed before your coverage began
• Lack of maintenance: Failures resulting from improper or neglected routine maintenance
• Improper installation: Items that weren't installed correctly or up to code
• Cosmetic issues: Damage that doesn't affect functionality, such as scratches or dents
• Known defects: Problems you were aware of at the time of purchase
• Code violations: Upgrades required to meet current building codes

Most plans require you to maintain your systems and appliances according to manufacturer guidelines to keep coverage valid. Always review your contract carefully to understand specific coverage limits, exclusions and maintenance requirements before purchasing a plan.

When is a home warranty worth it?

While home warranties aren't required, they may be worth the cost depending on your situation. A home warranty may be a good idea if you're buying or currently living in an older home with aging systems and appliances. It helps with the cost of repairs and replacements so you don't have to pay a significant amount out of pocket.

For example, if your oven breaks down and costs $500 to fix and you have a home warranty, you would only be responsible for paying a service call fee, and the company would cover the repair cost.

Who benefits the most from a home warranty?

Home warranties are beneficial for certain individuals, including homebuyers or sellers and people with older homes.

• You have an older home: Aging appliances and systems are more likely to break down, and warranty coverage can help manage the higher frequency of repairs.
• You want budget predictability: If paying for unexpected breakdowns out of pocket would strain your finances, a home warranty provides more predictable costs through annual premiums and service fees.
• You're uncertain about system conditions: When buying a home and you're not sure if the appliances and systems are in good condition, a home warranty offers protection during the transition period.
• You're selling your home: Offering a home warranty can make your property more appealing to buyers by providing peace of mind about potential repairs after closing.
• You lack repair knowledge: If you're not comfortable diagnosing problems or coordinating repairs, a home warranty simplifies the process by handling technician assignments and service coordination.

When you can skip a home warranty

A home warranty may not be worth the cost in certain situations. Consider skipping warranty coverage if:

• You have a new home: Newly built homes typically come with builder warranties and manufacturer warranties on appliances and systems that cover defects for several years, making additional warranty coverage redundant.
• You have substantial emergency funds: If you've built up savings specifically for home repairs and can comfortably afford unexpected breakdowns, paying annual premiums and service fees may not provide enough value.
• You prefer choosing your own contractors: Most home warranty companies require you to use their network of service providers, which may limit your options. If you have trusted contractors you prefer to work with, a warranty could restrict your flexibility.
• You're handy with repairs: Homeowners with strong DIY skills who can handle minor repairs themselves may find warranty coverage unnecessary, especially since service fees can add up quickly.
• Your appliances and systems are relatively new and well-maintained: Items that are neither brand new nor nearing the end of their lifespan, combined with regular maintenance, typically have lower breakdown risks.

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