You do not have to have a home warranty. No federal or state law requires you to buy one when you purchase or own an existing home, and no mortgage lender conditions a loan on having one. A home warranty is a voluntary service contract that pays to repair or replace household systems and appliances when they break down from normal use. The only situations where warranty coverage is legally required involve builders of newly constructed homes, not buyers or owners of existing ones.
Why Lenders Don’t Require a Home Warranty
Lenders care about the collateral behind the loan. That is why every mortgage lender requires homeowners insurance, sometimes called hazard insurance, as a condition of closing. Fannie Mae, for example, requires borrowers to maintain a hazard insurance policy with a deductible no greater than 5% of the coverage amount.1Fannie Mae. Property Insurance Requirements for One-to Four-Unit Properties A fire or storm can destroy the structure the bank is lending against. A broken dishwasher cannot.
A home warranty covers the opposite kind of loss: the gradual breakdown of an aging furnace, a failing water heater, a dead cooktop. It does not protect the structure, does not name the lender as a loss payee, and provides nothing to the bank if the property is damaged. So no major lender treats a home warranty as satisfying any part of the insurance requirement, and skipping one has no effect on your loan approval or your ongoing mortgage.
Homeowners insurance and home warranties address entirely different risks. Confusing them is common, but the two products do not overlap, and only one of them is ever mandatory.
When New Construction Changes the Answer
The picture shifts for newly built homes, though the obligation falls on the builder rather than the buyer. Many states recognize an implied warranty on new construction, requiring that a newly built home be free from defects in materials, workmanship, and major systems for set periods after the sale. A common framework runs about one year for workmanship and materials, two years for major mechanical systems like plumbing, electrical, and heating, and six to ten years for serious structural defects such as foundation failures.
You do not have to purchase this coverage. The builder is legally responsible for it as part of the sale. If a builder refuses to honor those obligations, buyers can pursue legal remedies under state law, and some states impose fines or licensing consequences on noncompliant builders.
FHA and VA New Construction Rules
Government-backed loans on newly built homes add another layer, again aimed at the builder.
FHA Loans
An FHA-insured mortgage on new construction requires the builder to sign a Warranty of Completion of Construction using HUD Form 92544. The form guarantees that the home was built in substantial conformity with the approved plans and specifications and that the builder will fix defects in equipment, materials, or workmanship at the builder’s expense.2HUD.gov. Warranty of Completion of Construction – HUD-92544 The warranty runs one year from title transfer or initial occupancy, whichever comes first.
VA Loans
The Department of Veterans Affairs requires builders of new construction properties secured by VA-guaranteed loans to provide the veteran buyer with either a one-year builder warranty or a ten-year insurance-backed protection plan.3Veterans Benefits Administration. Circular 26-25-1 – Elimination of Builder Identification Number for Certain Guaranteed Loans and Updates to Builder Complaint Process The VA no longer conducts its own compliance inspections on new construction and relies on local building inspections and the construction warranty. During the one-year warranty period, the VA will process complaints if defects arise.
None of these rules apply to resale homes. If you are buying an existing property with an FHA or VA loan, no warranty is required.
When a Purchase Contract Makes One Required
The one common way a home warranty becomes mandatory in a specific deal is through the purchase agreement itself. During negotiations, a buyer can ask the seller to provide a home warranty as a condition of closing. If the seller agrees and the contract is signed, delivering that warranty becomes a contractual obligation. Not a legal mandate, but enforceable in the same way any other closing condition is.
When a warranty clause is included, the premium is usually paid from the seller’s proceeds at closing through the escrow or title agent. If the seller fails to deliver the promised warranty, the buyer may have grounds to claim breach of contract, which can delay or derail the sale. Read the purchase agreement carefully before signing so you know whether a warranty is part of the deal.
What You Get if You Buy One Voluntarily
Because the choice is yours, it helps to know what a home warranty actually does. A standard plan covers repair or replacement of major household systems and appliances that fail from normal wear and tear. Typical covered items include:
- Home systems: heating, air conditioning, electrical wiring, plumbing, ductwork, and water heaters
- Kitchen appliances: refrigerators, ovens, ranges, cooktops, dishwashers, built-in microwaves, and garbage disposals
- Laundry appliances: washing machines and dryers
- Other items: garage door openers, ceiling fans, and sump pumps
Home warranties do not cover damage from storms, fire, or flooding, cosmetic issues, pest damage, or problems caused by neglect or misuse. Most plans also exclude items that were not working properly when coverage began, though some cover unknown pre-existing conditions that were not observable at the start. Smaller portable appliances like toasters, blenders, and coffee makers are excluded.
Plans typically cost between roughly $300 and $2,300 per year depending on coverage level and provider. Each time you file a claim, you pay a service call fee that generally runs from $50 to $175. The warranty company then dispatches a contractor to diagnose and repair or replace the covered item.
Weigh the annual premium and service fees against the age and condition of the systems and appliances in your home. If everything is new and under manufacturer warranty, a service contract adds little. If your furnace and water heater are approaching the end of their expected lives, the math looks different. Either way, the decision is yours to make.