Understanding 2-10 Warranties: Top Five Builder Questions Answered

Every builder knows that residential construction comes with its fair share of uncertainties. Luckily, there is one thing companies can have confidence in: 2-10 home warranties. This type of warranty is an important financial safeguard for builders and homebuyers to maintain the quality of a home while avoiding significant structural repair costs.

While most builders are familiar with 2-10 warranties, they may not know all the details of the protection. What is covered? For how long? What are the added benefits? PWSC is here to answer five of the most frequently asked questions about this valuable protection for new homes.

A 2-10 warranty is an insured protection plan builders provide to home buyers. The warranty covers a newly constructed home’s three major elements:

• Workmanship and materials – Establish quality standards for the materials and professional practices used in constructing the home.
• Systems – This section addresses coverage standards for “inside the wall” systems such as electrical, mechanical, and plumbing essential to a home’s function.
• Structural – Insures against defined defects for designated load-bearing elements in a home, such as roof framing systems, floor systems, and foundations.

Think of a 2-10 warranty as “peace of mind protection” for buyers and builders. The warranty sets clear guidelines for what is covered, who is responsible for the fix, and the industry-accepted construction standards required for the repair. Buyers gain assurance that should something covered by the agreement go wrong with their home. The builder and/or warranty provider will fix the issue.

Builders benefit by minimizing their exposure to costly structural claims and gaining financial resources to address latent defects. Without a 2-10 warranty, builders are liable for most fit and finish, systems, and structural defects per a home’s state statutes—for up to 10 years in many locations.

The “2-10” in the warranty’s name refers to the years of coverage associated with the protection, which takes effect at closing. However, a better way to remember what is covered and for how long is thinking of it as a three-part “1-2-10” warranty.

• Year one (1) – materials and workmanship/fit and finish
• Years one and two (2) – home systems
• Years one through ten (10) – defined structural elements

Builders and buyers often mistakenly think that “insurance covers everything.” Unfortunately, that is not the case. A 2-10 warranty and insurance do two jobs to protect new-construction homes.

• 2-10 warranty – The warranty typically addresses or insures the repair or replacement of major systems and structural elements. This commonly includes things like beams, girders, roofs, and foundations. Beyond year one fit and finish issues, 2-10 warranties address many big-ticket items that compromise a home’s integrity and come with significant repair price tags.
• Homeowners insurance – An insurance policy protects against damage to a home or its contents from specific perils such as Mother Nature, fire, water, and theft. Coverage also includes liability protection for damage to third parties and accidents occurring on the property.

How do 2-10 warranties and homeowners’ insurance policies work together? Let us say a foundation crack develops in year three, causing a basement to flood. Standard homeowners’ insurance covers repairing or replacing the damaged contents of the flooded basement but does not include the cost of repairing the foundation. Only a 2-10 builders warranty provides the financial resources and construction standards to fix the root cause of the problem and prevent further damage to the home. Otherwise, the builder is on the hook to pay for and perform the foundation repair directly. Consider the cost if this became a defect across an entire housing development.

Simply put, a 2-10 warranty fixes the problem while homeowners insurance pays for the damage the problem causes. One picks up where the other leaves off by providing important home coverage.

The Department of Housing and Urban Development (HUD) previously required 2-10 warranties to secure USDA, FHA, and VA home loans. However, the rules have changed, making 2-10 warranties one option for fulfilling VA or USDA requirements but not FHA requirements. Despite the change, some mortgage companies still require 2-10 warranties under their own loan conditions to protect their investment.

A 2-10 home warranty offers builders several important benefits:

• Financial protection – An insurance-backed 2-10 warranty provides builders with the financial resources to rectify structural defects in new-construction homes without having to foot the bill directly. Research indicates that structural defects are more common than you might think. An analysis of more than 10,000 structural claims over three decades showed one in every four homes experience some structural distress at an average cost of around $42,000 to investigate and repair.
• Legal protection – The cost of habitability claim verdicts is on the rise. Keeping homeowner disputes out of the courtroom is key to protecting a builder’s budget, resources, and reputation. A 2-10 warranty includes a clear agreement regarding builder obligations, homeowner rights, and the industry-accepted construction standards for evaluating claims. The warranty also should include a well-defined claims resolution process that resolves issues through impartial, expert-led mediation and arbitration rather than judges and juries.
• Customer service and satisfaction – The National Association of Realtors published research showing nine in 10 new homes experience premature maintenance issues. Providing a 2-10 warranty reassures buyers that their home is protected and that the builder stands behind the quality of the construction. Working with a top-rated warranty administrator also means 24/7 claim submissions and best-in-class service from a team of construction experts.
• Competitive advantage – In a tough housing market with soaring prices and mortgage rates, buyers want more in the purchase agreement to seal the deal. A 2-10 warranty can differentiate a home through its added protections, making it more attractive to buyers. Having a warranty also helps preserve a home’s quality, potentially improving its resale value. Maintaining a home's integrity, a 2-10 warranty becomes a smart and affordable way to boost a builder’s brand and reputation.