Warranties for New Homes

Coverage

Many home warranties are backed by the builder. Builders may also buy warranties from third-party independent companies. In fact, the Federal Housing Authority (FHA) and the Department of Veterans’ Affairs (VA) require builders to buy third-party warranties as a way to protect buyers of newly built homes with FHA or VA loans.

What’s Covered and For How Long

Builder warranties for newly built homes generally offer limited coverage on workmanship and materials for specific components of the home, like windows, heating, ventilation and air conditioning (HVAC), plumbing, and electrical systems. Warranties also usually spell out how repairs are made.

The length of coverage varies depending on the component of the house.

• One year: Coverage for workmanship and materials on most components usually expires after the first year. For example, most warranties on new construction cover siding and stucco, doors and trim, and drywall and paint during the first year.
• Two years: Coverage for HVAC, plumbing, and electrical systems is generally two years.
• 10 years: Some builders give coverage for up to 10 years for “major structural defects,” sometimes defined as problems that make a home unsafe and put the owner in danger. For example, a roof that could collapse is a “major structural defect.”

Situations and Items Typically Not Covered

Most new home warranties don’t cover out-of-pocket expenses resulting from a major construction defect or warranty repair, like the cost of moving out of your home and living somewhere else while repairs are made.

Builder warranties also usually don’t cover

• household appliances
• small cracks in brick, tile, cement, or drywall
• components covered under a manufacturer’s warranty

Service Contracts

A service contract is sometimes called a home warranty or an extended warranty, but service contracts are not warranties.

A service contract can help you fix or maintain products like appliances and air conditioning systems for a specific time — like a warranty. But, unlike a warranty, service contracts cost extra.

You might find that some service contracts

• give you the same coverage you get from the warranty included in the product’s purchase price
• cover only part of the product
• make it nearly impossible to get repairs when you need them

And if repairs are cheap, you simply might not benefit from the extra cost of a service contract.

Making a Warranty Claim

If you have a defect in your home that may be covered by your warranty

• Check the warranty to make sure the problem is covered. Pay particular attention to the length of specific types of coverage.
• File your claim using the instructions in your warranty. Even if the company provides a hotline for urgent requests, put your request for repair in writing. You may want to send your letter by certified mail and request a return receipt. That way, you’ll have proof that the company got your letter and who signed for it. Keep a record of your correspondence and conversations with the company. It’s always good to have a record of your dealings with the builder and the warranty company.

Resolving Problems

Disputes sometimes happen between a homeowner and a builder, or third-party warranty company, over whether a defect is covered or whether repair work was done properly.

Many warranties on new homes offer or require mediation and arbitration for disputed warranty claims.

• In mediation, a neutral third party — a mediator — helps the homeowner and the company resolve the problem by guiding the discussion between both parties. However, it’s up to the homeowner and the company to reach an agreement.

If mediation fails to resolve the dispute, it’s likely the homeowner would have to submit any claim to arbitration, instead of going to court. In this process, an arbitrator or panel hears each side’s case and then makes a decision or award. Some warranties let homeowners pick an arbitrator from a list acceptable to the builder or the third-party warranty company.

• Arbitration is less formal than court, although the homeowner and warranty company may appear at hearings, have legal representation, get documents from one another, present evidence, and question each other’s witnesses. Most warranties require that both parties accept the arbitrator’s decision, without appeal.

If your loan is financed through the FHA or VA and you file a claim against the third-party warranty company, you can choose between arbitration or going to court. If you choose arbitration, know that you are bound by the decision.

Costs

Arbitration is generally less expensive than going to court, but you can expect to pay up to several thousand dollars to take your claim through the process, depending on the complexity of the arbitration. Check your warranties to see what costs you and the builder must pay.

Some companies offer homeowners the choice of arbitration or going to court. Builders will sometimes agree to pay all the costs associated with arbitration as a way to avoid going to court.

For More Information

To learn more about new home warranties, contact your state or local builders’ board.

If you have a loan insured by FHA, contact the nearest field office for the U.S. Department of Housing and Urban Development or visit www.hud.gov.

If you have a VA loan, contact the nearest VA office, or visit www.homeloans.va.gov.