Is a Home Warranty Worth Buying?
If you’re buying a home, you may be wondering, “Is a home warranty worth buying?”
Sometimes, yes. Sometimes, it’s not worth the money.
A home warranty can give you some peace of mind when an older appliance or home system suddenly stops working. But it’s not the same thing as homeowners insurance, and it doesn’t cover everything that can go wrong with a house.
The decision usually comes down to three things: the age and condition of the home, what the warranty actually covers, and whether the cost makes sense for you.
If you’re buying a home in Ann Arbor or anywhere in Southeast Michigan, I recommend looking at the warranty as one part of the overall home-buying decision, not as a substitute for a good home inspection.
What Is a Home Warranty?
A home warranty is a service contract that can help pay for the repair or replacement of certain covered home systems and appliances when they break down from normal wear and tear.
Depending on the plan, coverage may include things such as:
Heating and cooling systems
Plumbing systems
Electrical systems
Water heaters
Refrigerators
Ovens and ranges
Dishwashers
Washers and dryers
Garbage disposals
Garage door openers
The exact coverage depends on the company and the plan you purchase.
That last part matters.
Two home warranty plans can sound similar but have very different coverage limits, exclusions, service fees, and rules about repairs or replacements.
So don’t just look at the price.
Read the contract.
A Home Warranty Is Not Homeowners Insurance
This is one of the first things I would make clear to any homebuyer.
Homeowners insurance and a home warranty serve different purposes.
Homeowners insurance generally protects you against certain unexpected events covered by your policy, such as specific types of property damage.
A home warranty is generally designed around the breakdown of covered appliances and home systems due to normal wear and tear.
For example, if a covered furnace stops working, a home warranty may help with the repair depending on the terms of the contract.
If a major storm damages your roof, that’s a different issue. You would look to your homeowners insurance policy and its coverage.
You shouldn’t buy a home warranty thinking it replaces homeowners insurance. It doesn’t.
When Is a Home Warranty Worth It?
There are situations where a home warranty can make sense.
1. You’re Buying an Older Home
Older homes can come with older mechanical systems and appliances.
That doesn’t automatically mean they’re going to fail. A well-maintained older furnace can sometimes keep working for years.
But age does increase the possibility that you’ll eventually have to deal with a repair or replacement.
If you’re buying an older Ann Arbor home with several aging systems, you may feel more comfortable having a warranty during the first year.
That peace of mind can have value.
2. The Home Has Older Appliances
Take a look at the appliances that will remain with the home.
How old are they?
Are they working properly?
Have they been maintained?
If the refrigerator, dishwasher, water heater, furnace, or other major systems are getting older, a warranty may be worth considering.
Again, you need to check whether those specific items are actually covered by the contract.
3. You Don’t Have a Large Repair Fund Yet
This is a big one for first-time buyers.
Buying a home can use up a lot of your cash.
You may have paid for your down payment, closing costs, moving expenses, furniture, and other unexpected expenses. You may not have a large emergency fund sitting around after closing.
A home warranty won’t eliminate repair costs, but it may reduce the financial shock of certain covered repairs.
There can still be service fees, coverage limits, and exclusions, so you need to understand what you’re buying.
4. You Want More Predictability
Homeownership comes with expenses that renters don't always think about.
Something breaks. You call someone. Someone comes out. You get a bill.
A warranty can make some of those situations more predictable.
For some homeowners, that alone makes the annual cost worthwhile.
When Might a Home Warranty Not Be Worth It?
There are also plenty of situations where you may decide to skip it.
The Home and Its Systems Are New
If you’re buying a newer home with relatively new appliances and mechanical systems, you may have less need for a warranty.
You may already have manufacturer warranties on certain appliances or systems.
New construction can also have builder warranties that cover certain issues.
You’ll want to understand what warranties are already in place before paying for additional coverage.
You Have a Strong Emergency Fund
If you have enough savings to comfortably handle an unexpected repair, you may decide you’d rather keep the money you would have spent on the warranty.
For example, instead of paying for a warranty every year, you could put that money into a home repair fund.
There’s no guarantee you’ll come out ahead financially. You might go several years without a major repair, or you might have a large expense shortly after buying the home.
The point is to decide which approach fits your finances and your comfort level.
The Contract Has Too Many Exclusions
This is where people can get frustrated with home warranties.
You may think, “My furnace is covered.”
But then you discover that certain parts, conditions, maintenance issues, or circumstances aren't covered.
Or maybe the company has a limit on how much it will pay toward a repair or replacement.
That’s why I would never tell a buyer to purchase a warranty simply because it sounds like a good idea.
Look at the actual contract.
What Does a Home Warranty Usually Cost?
The cost varies by provider, plan, location, coverage, and optional add-ons.
There may also be a service call fee when you request service.
That means you shouldn't compare plans based only on the annual or monthly premium.
Look at the entire potential cost:
Annual or monthly warranty premium
Service call fees
Coverage limits
Repair limits
Replacement limits
Exclusions
Optional coverage
Conditions that could cause a claim to be denied
A cheaper plan isn't necessarily the better deal.
A more expensive plan isn't automatically better either.
The question is whether the coverage matches the home you're buying.
What Should You Check Before Buying One?
If you're considering a home warranty, slow down and read the details.
Here are some questions I'd ask:
What exactly is covered?
Don't settle for a list of general categories.
Look at the actual contract and find out what is covered within each category.
What isn't covered?
This can be just as important.
Look for exclusions and limitations.
How much is the service fee?
You may have to pay a service fee each time a technician comes to your home.
Who chooses the repair company?
Some warranty companies use their own network of contractors.
Find out how the process works and whether you have any choice in who performs the work.
What happens if something can't be repaired?
Does the company replace it?
How much will it pay?
Are there limits on replacement costs?
Don't assume the answer.
Are pre-existing problems covered?
This is particularly important when buying a home.
A home inspection may identify an existing problem, while other issues may not be obvious until after closing.
Understand how the warranty treats pre-existing conditions.
Don't Skip the Home Inspection Because You Have a Warranty
This is worth repeating.
A home warranty is not a replacement for a home inspection.
When you're buying a home, an inspection can help you understand the condition of the property before you commit to the purchase.
An inspector may identify concerns involving:
Roofing
Plumbing
Electrical systems
Heating and cooling
Foundation
Structure
Windows
Attic and insulation
Appliances
Water intrusion
The inspection gives you information.
The warranty is a service contract that may help with certain future repairs.
They're two very different things.
A Simple Way to Decide
If you're sitting at the kitchen table trying to decide whether to buy a home warranty, here's a simple way to think about it.
Ask yourself these five questions:
1. How old are the major systems?
Look at the furnace, air conditioning, water heater, plumbing, electrical components, and major appliances.
2. What warranties already exist?
Check manufacturer warranties, builder warranties, and any other coverage that may already apply.
3. How much money would a major repair set you back?
If a $2,000 or $5,000 repair would create a serious financial problem, additional protection may be more appealing.
4. What does the home warranty actually cover?
Read the contract instead of relying on a salesperson's summary.
5. Would you rather pay for coverage or build your own repair fund?
Neither choice is automatically right for everyone.
It depends on your home and your finances.
What About a Home Warranty When You're Negotiating the Purchase?
Sometimes a home warranty becomes part of the conversation during a home purchase.
A seller may offer one.
A buyer may request one as part of negotiations.
In some transactions, a warranty is included as part of the listing or purchase arrangement.
If you're negotiating for one, make sure you understand what you're receiving.
Don't let the word “warranty” make you assume every future repair will be covered.
Ask for the actual terms.
Common Mistakes Buyers Make With Home Warranties
Assuming everything is covered
It isn't.
Coverage is limited by the contract.
Buying the cheapest plan
Price matters, but coverage matters more.
Not checking service fees
A low annual premium can look attractive until you realize you'll pay a service fee whenever you request a repair.
Assuming the company will replace everything
A warranty company may repair a covered item, replace it under certain circumstances, or pay up to a specified limit.
The contract controls.
Forgetting about existing warranties
You may already have coverage on certain appliances or systems.
Check first.
Treating a warranty as a substitute for maintenance
Regular maintenance still matters.
A warranty isn't an excuse to ignore your furnace, plumbing, appliances, or other home systems.
So, Is a Home Warranty Worth Buying?
For some homeowners, yes.
For others, no.
If you're buying an older Ann Arbor home with aging systems and you don't have a large repair fund yet, a home warranty may provide useful peace of mind.
If you're buying a newer home, have substantial savings, or already have good coverage through other warranties, you may decide to put that money toward your emergency fund instead.
There isn't one answer that works for every buyer.
What matters is understanding the condition of the home, the age of its systems, the coverage you're actually getting, and what you're comfortable spending if something breaks.
As a Realtor® serving Ann Arbor, Michigan, I help buyers look at the whole picture when they're making a home purchase. A warranty is just one small piece of that decision.
When you're looking at the bigger picture, it can also help to consider the benefits of living in Ann Arbor, from its neighborhoods and outdoor spaces to its restaurants and everyday conveniences when deciding whether a particular home and location fit your plans.
Frequently Asked Questions
Is a home warranty worth it for a first-time homebuyer?
It can be, particularly if you're buying an older home and don't yet have a large emergency repair fund. But you should compare the cost and coverage with your specific home before purchasing one.
Does a home warranty cover everything in a house?
No. Coverage depends on the specific contract. There can be exclusions, service fees, coverage limits, and conditions that affect whether a claim is covered.
Is a home warranty the same as homeowners insurance?
No. They serve different purposes. Homeowners insurance generally covers certain types of property damage, while a home warranty is generally intended to cover certain repairs or replacements involving covered systems and appliances.
Do I still need a home inspection if I buy a home warranty?
Yes. A home inspection and home warranty serve different purposes. An inspection helps you understand the condition of the home before you buy it.
Who usually pays for a home warranty?
It depends on the transaction. A seller may offer one, a buyer may purchase one, or the cost may be negotiated as part of the transaction.
The Bottom Line
A home warranty isn't automatically a good deal or a bad deal.
For the right homeowner, it can provide peace of mind during those first years of owning a home. For someone with newer systems and a healthy emergency fund, saving the money for future repairs may make more sense.
If you're buying a home in Ann Arbor, take the time to look at the age and condition of the home's major systems, review any existing warranties, and read the home warranty contract carefully before making your decision.
You may also want to think about the kinds of unique things you can enjoy around Ann Arbor outside of the home, especially when you're comparing different locations and thinking about your day-to-day lifestyle.
And if you're not sure what questions to ask during the buying process, that's something your Realtor® should be able to help you work through.
Another part of understanding an Ann Arbor home is knowing how the community around it may fit your household, including whether the area offers the kind of family-friendly environment you're looking for.
About the Author
Nancy Arnold, Realtor®
The Charles Reinhart Company
2275 W. Stadium Ann Arbor, MI 48103
[email protected]
734-260-3505
