After closing

Home warranties: what they actually cover

Educational guide · Updated 2026

A home warranty is often offered during a sale — sometimes the seller pays for the first year as an incentive. It's frequently confused with homeowners insurance, but they cover completely different things.

What a warranty typically costs vs covers

A standard home warranty runs $400–$700/year with service call fees of $75–$125 per claim. If your HVAC system fails (replacement cost: $5,000–$8,000), the warranty covers repair/replacement minus your service fee. For first-time buyers inheriting older systems, this can be valuable. For newer construction, it may add little beyond the builder's warranty.

What a home warranty is

A home warranty is a service contract that covers the repair or replacement of major home systems and appliances when they break down from normal wear and tear — things like the HVAC, water heater, plumbing, electrical systems, and kitchen appliances. You pay an annual fee, plus a service-call fee each time you use it.

How it differs from homeowners insurance

Homeowners insurance covers sudden damage from events — fire, storms, theft, certain water damage. A home warranty covers things wearing out over time. Insurance won't replace a water heater that simply died of old age; a warranty is designed for exactly that. They're complements, not substitutes — and insurance is typically required by your lender, while a warranty is always optional.

The pros

For a buyer purchasing an older home, or anyone without savings set aside for surprise repairs, a warranty can provide budget predictability — a known annual cost instead of a potential surprise four-figure repair. If a seller offers to pay for the first year, that's a low-risk way to try it.

The cons

Home warranties have real limitations: coverage caps, exclusions for pre-existing or improperly maintained items, and the service-call fee on every claim. Some buyers find the warranty company denies claims they expected to be covered, or that the annual fee plus service fees outweigh what they'd have spent on repairs. Read the contract's coverage and exclusions carefully before relying on it, and weigh it against simply keeping a repair fund.

Frequently asked questions

Can I negotiate a home warranty as part of the purchase?

Yes. Asking the seller to include a 1-year home warranty is a common buyer request, especially for older homes.

Does a home warranty cover pre-existing conditions?

Usually not. Most warranties exclude known pre-existing conditions identified in the inspection — another reason to get a thorough inspection before closing.

Is a home warranty the same as homeowners insurance?

No. Homeowners insurance covers damage from events like fire, storms, or theft. A home warranty covers mechanical breakdowns of systems and appliances from normal wear.

This article is educational and general in nature. Terms, costs, and rules vary by lender, provider, state, and your individual situation. Confirm details with a licensed professional.