New Furnace Cost Guide & Installation Tips

Our new furnace cost guide includes the cost for any type of furnace as well as how much does it cost to hire a professional for installation.

The word ‘furnace’ conjures up different images depending on what country you are in. If you live in North America you mean a domestic appliance using electricity, gas, oil or solid fuel designed to heat air or water to be circulated around the home by means of air conditioning ducts (in the case of air) or piping and radiators (in the case of water). In the UK the same piece of equipment would be called a ‘boiler’ whereas the word ‘furnace ‘ is reserved for an enclosed piece of equipment designed to give off enough heat to melt and smelt metal.

After that clarification, today we are talking about a North American furnace.

So you want to replace your domestic furnace?

Whether you are just replacing a furnace that has died on you or replacing the complete heating system, either job is going to cost a lot of money. Before you start to look around for a brand new furnace it would be wise to consult a licensed HVAC engineer (Heating, Ventilation and Air Conditioning). In order to make sure you have the correct size of furnace, the HVAC guy will need to have some information:

  • The size of your house.
  • The age of your house.
  • Its configuration.
  • What type of insulation you have.

From this data he can work out what size and type of heating system and furnace is best for your particular circumstances. This will be covered in more detail later in this article.

If you are just replacing a dead furnace and leaving all the heat distribution system alone, then you will be limited to the efficiency of the existing system. If however you are changing everything, then you have many more options available to you. Once again you need the advice from a qualified heating engineer before you can go any further.

For the purposes of our discussion today we will assume that we have just found out that our central heating furnace has stopped working because it is so old. My budget won’t stretch to replacing the heat distribution system as well, so all I need is a new furnace.

What fuel can we use?

The first thing to discuss with your HVAC contractor is what type of fuel you want to use:

Something else?

Most people carry on using the same fuel that they previously used. Not only do they feel comfortable with the familiar fuel, but also they do not need to run extra electricity cables, gas pipes, ducting, solar panels or whatever is needed for the new fuel. This minimises labour and materials and so minimises costs.

Hang on a minute; you might have a very good reason to change the type of fuel. Your house location, size and energy bills all have a direct bearing on the type, model, fuel and size furnace for your home.

Before we decide on the type of furnace we are going to buy, we need to talk about each fuel in a bit more detail and get an idea of the pros, cons and costs of each type.

Average furnace cost in general

There are a lot of furnace manufacturers out there to choose from and it is important to make the correct choice before committing yourself to buying and installing. Just because you have seen a particular make advertised on television or in magazine adverts doesn’t mean that the models they recommend will be the correct ones for your circumstances. This is where the extensive knowledge and training of the HVAC engineer comes into its own. They will be able to give you advice on the best furnace for your house and for your budget. Remember that unless you have had specific HVAC training, you will require the services of a HVAC registered installer to fit your new furnace. This will cost extra on top of the price of the appliance and you should be prepared for it. Always ask a contractor how much they will charge for fitting the new furnace AS WELL AS getting the system up and running, ready to use.

You will probably find that those contractors who install expensive, top of the range furnaces will also charge more than the average for their services. This is to be expected as they will usually be contractors with more years’ experience and more knowledge.

Furnace: equipment and installation costs

The prices listed are for an average 1600 to 2000 square foot house, with average heating requirements being supplied by an 80,000 BTU furnace with a three ton blower. The furnace will be installed in a first floor utility room.

Low EndHigh EndAverage Cost
Estimated gas furnace cost$650$1,500$1,200
Estimated gas installation cost$1,800$4,000$2,400
Estimated electric furnace cost$400$1,200$700
Estimated electric installation cost$1,700$2,500$2,000
Estimated oil furnace cost$1,400$2,400$1,900
Estimated oil installation cost$4,700$7,000$6,000

Gas is the most commonly used fuel, especially in areas with extremely cold winters.

Electricity is the commonest fuel in parts of the country that don’t have cold winters. Electric furnaces can be more efficient to use than other fuels, depending where you live, but the cost of electricity is so high that it makes it impractical to use for a large home. Electricity is used more commonly in areas whose winters do not drop below freezing point, such as south-eastern USA.

Oil. These furnaces have been around longer than gas or electricity fuelled ones. They are very common in those areas of the country where oil is plentiful. The current price of oil generally means that these furnaces are gradually being replaced by models using cheaper fuels.

How efficient are they?

Obviously you want to have the most efficient furnace you can get to heat your home the best way possible. All new furnaces are sold with an Annual Fuel Utilisation Efficiency rating (AFUE) that tells you the efficiency of your furnace. Higher ratings equate to lower fuel consumption. The ratings can be summarised as shown in the table below:

AFUE ratings
Mid-efficiency80% to 83%
High efficiency96.00%

To encourage and reward furnace manufacturers, the US Federal government awards ‘Energy Star’ ratings.

Southern States (AFUE rating)Northern States (AFUE rating)
Gas furnaces with the Energy Star>90%>95%
Oil furnaces with the Energy Star>85%>85%

How do I know how much a new furnace will save me?

The following steps will help you work out how long it will take to recoup the cost of installing a new furnace.

1. Calculate how much you already pay for your heating fuel.

Look on your monthly gas or electricity bill and multiply the amount by 12 to give you an annual cost. If you prefer a more accurate amount, your utility company will assess your furnace and tell you what proportion of the bill is used on heating. If you use oil then calculate the amount you spend over 12 months.

2. Work out the total price of your new furnace including installation.
3. Subtract government rebates.

The government provides incentives and rebates to encourage the purchase of modern, heat efficient appliances. There will also be incentives from the utility company and the furnace manufacturer as well. Total all these rebates together and subtract from the total price of the furnace found in ‘Step 2’. This will give you the true cost of your furnace.

4. Yellow tag.

On your new furnace there will be a yellow tag detailing how much energy the appliance should use annually. Remember this is an estimate based on the usage for an average home.

5. Multiply the annual energy usage by the cost of energy.

Your utility bill will tell you the cost of energy in your area.

6. Subtract new costs from old costs.

You will now have the annual cost of using the new furnace and the annual cost of using the old furnace. Subtract the new cost from the old cost.

7. Divide the final cost of your new furnace by the savings found in ‘step 6’.

This will tell you how many years it will take for your new furnace to pay for itself.

8. Analyse the number of years.

If the number of years calculated in ‘step 7’ is more than 10 years, consider using a cheaper but less efficient alternative. How about sealing leaky ducting or adding more insulation?

Tell me about the costs of installation

The cost of the labour involved in installing your furnace will vary depending on where you live and the HVAC contractor performing the installation. The higher rated furnaces will always cost more to buy than lower rated furnaces, and the cost to install the more expensive furnaces will also be more than cheaper furnaces. The reason for this is that engineers who choose to specialise in the higher rated furnaces tend to have more experience and therefore feel they are justified in charging more for their time.

ItemHourly rate for labourCost per item
HVAC licensed professional$50 to $80
Unqualified team members<$50
Installation permit$50 to $150

Remember that a permit may not always be required for the installation. Seek advice from your HVAC engineer or at the City hall. In addition to these costs you will also need to have the finished job inspected. Once again ask about the need and price for this.

You may need extra work to repair the ducting and pipework to bring it up to standard. Ask your HVAC contractor to do an inspection and give you an estimate for this extra work.

So which type of furnace is best?

Each type of furnace has its own pros and cons. These factors will have to be considered when you decide which fuel you want to use.


Cost. We found out earlier that the average prices of electric furnaces are cheaper than natural gas furnaces as far as initial costs go.

Hardware. They don’t need special vent work to cope with the exhaust fumes, or pipes and tanks to deliver and store the fuel oil.

Installation. The heating units are small and relatively inexpensive to install.

Maintenance. Easy to maintain.

Safety. There is no combustion of hydrocarbons so there are no exhaust fumes. They are therefore clean and relatively safe.

Lifespan. They tend to have a long lifespan, about 15 to 20 years.

Efficiency. Although more efficient than they were 10 years ago, electric furnaces are still the least efficient and energy bills are the highest.

Usage. They are very common in warmer parts of the country where the winters are not very cold.


Cost. Natural gas furnaces cost more than electric ones.

Hardware. Unless you are replacing an existing gas furnace, there are the extra costs of installing gas pipework from the street and installing exhaust fumes ducting.

Efficiency. More efficient than electric furnaces, meaning lower energy bills. Gas will also warm the house quicker than other fuels so you have the added advantage of convenience.

Conversion. If you live in an area without natural gas, you can easily convert a natural gas furnace to bottled propane gas.

Usage. Although recommended for anyone, they are especially useful for areas of the country with cold winters.

Installation. Installing a natural gas furnace can be a very long and complex job, with lots of extras as well as the furnace. The acid fumes can corrode the exhaust ductwork so this will need replacing now and again.

Inspections. Gas furnaces are required to have permits and regular inspections to ensure safe operation.

Old furnace removal. Getting rid of the old furnace will be relatively inexpensive, but ensure you follow the local waste and recycling regulations.

Repairing ducts and vents. Gas furnaces produce exhaust fumes. The ductwork and vents associated with gas furnaces need regular inspection and repairs if necessary. If the repairs are not done then mould, fumes and dust can find their way into the home causing and aggravating many respiratory illnesses.

The Environmental Protection Agency says that it is vitally important that ductwork is repaired correctly. Leaky ducts which expel exhaust fumes and blocked air inlet vents can cause a drop in efficiency of up to 30%. This can make a high energy furnace run at between 66% and 86% and make an economical furnace with an AFUE rating of 80% probably about as efficient as an open fireplace. Approximate costs to replace ducts average from $10 to $15 per foot.


Cost. Oil furnaces were common and dominated the market when oil was cheap. As the oil price increased, the federal government gave monetary incentives for consumers to convert to natural gas and get rid of their oil furnaces. These rebates are still available if you happen to be one of those who continued to use oil as a fuel.

Hardware. Freestanding oil tank required. This allows you to buy oil in bulk when prices are favourable.

Other fuels

There are other, more environmentally sustainable fuels available such as

  • Solar panels
  • Geothermal
  • Wind power

These are a good investment for your home as fuel prices continue to rise, but you must seek the advice of an expert who is aware of the various types of sustainable energy sources available. Your personal circumstances may not be favourable to use a specific type of sustainable fuel. This could be something like the aspect and location of your home in a forest or in a valley preventing enough sunlight for solar panels to be feasible.

The upfront installation costs are also very high and an accurate analysis of pay-back period must be considered to see which type of sustainable fuel gives the best return. There are also federal government monetary incentives available for “green” alternatives, an example being that the US Department of Energy currently gives a 30% tax credit for certain types of heating systems (This may change). The most important first step when considering a sustainable fuel is to contact a professional who will not only know which method is best for you but will also be able to advise you on the government incentives available.

How can you calculate the size of furnace needed for your home?

It makes sense, when choosing your new furnace to buy one that is matched to the size of your property. If you choose one that is too large and exceeds the requirements of your home circumstances, then it will be simply a waste of money. If you choose one that is too small then the furnace will be working continuously and trying to cope with the added load. It will be working outside its design capabilities and will therefore be using far more fuel than it should be and will probably require more repairs and replacements sooner than expected.

An accurate method of calculating the size of the required furnace is to do a load calculation. This is a very involved method and requires specialist knowledge. In some areas you will need this calculation done before a permit can be issued so it’s worth finding out if you need one. If you do need one then a good contractor will include this calculation in their estimate. The data required for the calculation includes:

  • Type of foundation.
  • Type of roof.
  • Colour of roof.
  • Amount and thickness of insulation.
  • Windows; type, location and number.
  • External doors; type, location and number.
  • Ideal temperature.
  • Location of house.
  • Aspect of house.
  • Size of house.
  • Orientation of house.
  • Construction materials.
  • Any landscaping that determines the amount of wind or sun affecting the house.

It is possible to calculate a more ‘rough and ready’ figure to initially help you to choose the size of furnace. This figure is the average heating capacity that is required in your home.

First of all calculate the square footage of your home. The average home typically needs 30 to 60 BTUs per square foot. The actual requirement depends on where in the country your home is located. The USA has five different climate zones and a different heating capacity is required in each zone. Also, no matter in which zone they are placed, newer homes tend to have better insulation and can therefore operate in the warmer climate zone range of 30 to 35 BTU.

Climate zoneAverage heating capacity
Warmer climate zone30 to 35 BTU
Temperate climate zone40 to 45 BTU
Colder climate zone50 to 60 BTU

A typical calculation for a 3,000 square foot house with modern insulation would look something like this.

Climate zoneCalculationAverage heating capacity
Warm Climate3,000 x 3090,000 BTU
Temperate climate3,000 x 40120,000 BTU
Cold climate3,000 x 50150,000 BTU
Very cold climate3,000 x 60180,000 BTU

This isn’t the end of the calculations, as just because a furnace is rated at 120,000 BTU does not mean that it can heat a house that needs 120,000 BTU. The furnace’s AFUE rating (remember? We talked about this earlier on) has to be taken into account. For example a furnace with an AFUE rating of 80% will only be able to provide 80% of the 120,000 BTUs needed for the house. This is about 96,000 BTU.

So the previous calculation table can be amended to take into account a range of AFUE values.

Climate zoneAFUE ratingCalculationNett Average heating capacity
WarmAFUE 800.8 x 90,00072000
AFUE 900.9 x 90,00081000
TemperateAFUE 800.8 x 120,00096000
AFUE 900.9 x 120,000108000
ColdAFUE 800.8 x 150,000120000
AFUE 900.9 x 150,000135000
Very coldAFUE 800.8 x 180,000144000
AFUE 900.9 x 180,000162000

Do I have to replace the furnace anyway?

If a furnace is inspected and maintained regularly, then the average lifespan would be between 15 to 20 years. So the chances are that you don’t have to replace yours anyway, just add a few new spare parts when needed. If you want to upgrade to a more modern, more efficient furnace then it might save you some money depending on what is wrong with the old one and what work you have already had done. The situation is similar to the question sometimes asked “When do you stop paying out for spare parts on your second hand car and go out and buy a new one?”

If you have a gas furnace you might find that your gas company are offering trade-ins on your old furnace for a new, more efficient model. There is no harm in asking.

What reasons are there for buying a new furnace rather than having repair?

As furnaces become older they usually become more inefficient. Not only that but newer models have the benefit of new technology and higher standards. The old units that used to operate at 55% to 70% AFUE have been obsolete since 1992. The minimum standard these days is 80% AFUE and all units should at least meet these present guidelines. No doubt, in the future this AFUE rating will be even higher. We must wait and see.

Not only are the modern furnaces more energy efficient they are also quieter, more compact, use less fuel and produce less exhaust gases. If your existing oil or gas fuelled furnace was original installed before 1991 then it is probably costing you a lot of money by wasting your hard-earned cash by paying for more fuel than is needed and is also throwing up to about 4 tons of carbon dioxide and other gases into the environment every year.

How about the ducts and vents?

If you are updating your furnace, then you will probably have to update the exhaust ducting and inlet vents as well. Furnaces will not work to their design standard if they have not got sufficient cross sectional area of the inlet air ducts or outlet exhaust vents. That includes filters too.

Replacement furnaces will also probably have different fittings so it would be impossible to retro-fit the old ducting onto the new furnace anyway. You must always remember that the furnace is just one part of the whole heating system and needs the incoming air, filters, outgoing exhaust, hot air ductwork, hot water pipes and radiators to work together as one unit.

An electric furnace will need different ancillary items to a gas furnace and an oil furnace, so you need to have the correct specifications for each type fuel. If you need to have the piping and ducts replaced then you are talking about $5,000 to $20,000 extra depending on the size of your system.

The different factors that affect the cost of ducts and vents can be summarised as follows:

  • How many floors has your house?
  • How many intake and output vents do you need for a comfortable heat or how many hot water radiators do you need and the length of piping?
  • How many separate temperature zones do you need in your house?
  • How much repair work needs to be done to the walls and floors to install the various ducting or piping?
  • How accessible do the ducts have to be?

What about warranties?

The greatest benefit of installing new heating equipment is that the manufacturer will provide a warranty for the quality of their hardware and the installer will provide guarantees for the labour needed for installation. This will mean that if repairs are necessary within the warranty period, you will have them done free of charge. The length of warranty has a direct relationship to the price of the furnace. More expensive furnaces will be of better quality and so will be expected to last for a longer time than cheaper furnaces. Always consider the different warranty options you have before committing yourself to buying a certain furnace.

You should have a basic warranty supplied with the equipment, usually 5 to 10 years (depending on the price of the hardware) but the manufacturer will often give you the option of purchasing additional warranties or insurance policies to cover you for extended periods on top of the basic. Although warranties are a useful thing to have, the manufacturer knows how long their product is likely to last before needing spare parts and they always provide free warranties that expire just before the predicted date.

Standard parts of your furnace

Different model furnaces will have different standard parts. Likewise different fuels will also require different parts as they produce energy in different ways. They all have in common certain parts however which we will now list below.

Power on/off switch. All furnaces, even non-electric fuelled ones need electricity to power certain components. If yours blows hot air around the house then you will need electricity to power the fan. If it produces hot water for radiators then you will need a pump to move the water around the house. Every type of furnace needs electricity to power the circuit boards which tell it when to start and stop producing heat and they need electricity to power the thermostat. Some components for safety reasons won’t even work at all unless there is electricity present.

Emergency shut off valve. No matter which type of furnace you have there will always be a valve of some kind which controls the fuel inlet. If you use gas then there will be a simple lever on the outside of the house controlling the gas intake; If your fuel is oil then there will be a valve somewhere on the inlet pipe so you can isolate the oil supply from the furnace. Even if you have an electric furnace, you will have a mains switch to isolate electricity from the furnace. No matter which one you have, it is extremely important that you know where it is and how to operate it.

Pilot light. This is the flame which ignites the burner in gas and oil furnaces. In old models, the pilot light was lit all the time and was very wasteful of energy. In new models the pilot light is ignited by electricity whenever the furnace needs to be turned on. The pilot light then ignites the main burner as normal.

Air blower. If your heating system is one that moves warm air about the house, this is the component that does that job. It is important that this is working efficiently as not only does it blow the warm air around, but by doing so it helps to prevent the furnace from becoming too hot.

Circulation pump. If your heating system is one which moves hot water around the house, then this is the component which does that job. Like the air blower it maintains circulation that helps to prevent the furnace from becoming too hot.

Burner. The burner is what produces the heat. As stated earlier, the pilot light ignites the burner which warms up the heat exchanger which produces the heat to be circulated around the house. The burner has a cover not only preventing particles from entering the heat exchanger and clogging the fins, but also to prevent accidental contact with the flames.

Heat exchanger. This is a length of metal piping that carries the heated gases. As the heated gas heats the metal, the blower sends cold air across it to warm up the circulating air. This warmed air is then circulated around the ductwork. If you have a hot water heating system then the heat exchanger transfers its heat to the cold water before it is circulated through the system.

Combustion chamber. This component is where the fuel is burned in oxygen. The chamber has a vent providing outside air necessary for combustion, the heat exchanger, the burner and an exhaust vent through which the combustion by-products are vented harmlessly to the outside.

Supply duct. If you have a circulating air system, this component comprises the ductwork necessary for channelling the heated air around the house. There is a damper by which it is possible to regulate the flow of heated air as it leaves the heat exchanger. Some dampers are operated manually and some are operated electronically under instruction from the thermostat.

Return duct. This channels cool air into the heat exchanger from outside.

Hot water radiators. If your heating system circulates hot water then the water will be channelled through small diameter piping from the heat exchanger and around the circuit to the radiators. The radiators transfer their heat to the rooms in which they are situated. The cooler water is then returned to the heat exchanger to be heated once again.

Condensate drain. Passing cool and warm air through a system also removes moisture from the humid air. The condensate drain diverts condensed water vapour out of the system to drain to help prevent corrosion to the furnace.

Is this a DIY project or a job for the professionals?

Installing a new furnace or even repairing an old one is not a job for the DIY person. Not only is it illegal for anyone to install furnaces that is not certified to do so, it is also a very dangerous practice and one that if not done properly could result in either very serious property damage by fire or explosion, or the death of you and your family by burning, smoke inhalation or carbon monoxide poisoning. This is why HVAC and other heating engineers are trained and certified.

Safety practices

The first and foremost safety practice when dealing with furnaces is that if you don’t know what you are doing then keep well away. Not only do they produce a lot of heat which can damage human skin as well as property, but the furnaces that rely on combustion to provide their heat use a highly combustible fuel which if mishandled can at best require evacuation of your house while the escaped gas dissipates or the oil is mopped up and disposed of in a responsible manner and at worst can produce house fires, explosions and death.

Each type of fuel requires enough oxygen to burn completely liberating the maximum energy and the minimum toxic exhaust fumes. Fuel which is partially burned by being starved of oxygen produces lots of carbon monoxide, which if inhaled can cause unconsciousness and death. The oxygen necessary for the fuel’s complete combustion comes from the outside air and is delivered through vents and filters. It is vitally important that the air is not restricted by either partially obstructing the inlet vents or by using a clogged filter. Not only does the incoming oxygen have a bearing on how well the combustion takes place, the amount of exhaust gases present also matters. If the exhaust vents become clogged by soot due to inefficient burning, then the available cross sectional area for the exhaust can be seriously reduced creating a back pressure inside the combustion chamber. This further causes inefficient combustion resulting in more carbon monoxide and soot and the back pressure forces the exhaust fumes into the house.

If you have a natural gas furnace then the fuel is piped direct to your house from the street. If you have propane gas (also known as bottled gas) then you must have the gas bottles delivered by the retailer, who stores them outside. They must be stored outside so any gas leaks are vented safely to the outside air. They also must be stored in a cage or chained immovably to prevent any damage due to vandalism.

Where do I store the heating oil?

If you have an oil fired furnace then the oil must be stored in a large tank outside. Although the danger from fumes is not as great as for gas leaks, the oil tank should still be kept outside because heating oil has a very strong smell which will spread through the house if allowed to. Although older tanks were made from galvanised steel, and thus prone to corrosion, modern tanks are now made from plastic as well. Both types of tank have their advantages and disadvantages. Steel tanks are structurally stronger and recommended for storing extremely large amounts of heating oil for example capacities over 2,500 US gallons (approximately 10,000 litres). They are however very heavy, very expensive and prone to corrosion.

Plastic tanks are much more common for domestic oil storage, are lighter in weight and much cheaper. Plastic tanks also come in different varieties such as single skin, double skin and bunded. The double skin bunded tanks are useful to prevent uncontrolled leakage of oil in the event of a leak caused by a puncture or a split. The double skin tank is basically a tank within a tank and is designed so that if a leak occurs the oil leaks out of the inner tank and into the outer tank. This prevents oil leaks into the environment and avoids large clean-up costs.

There are basically three recommended locations for domestic oil tanks to be stored in the USA.

Aboveground. This tank can be in the home, usually in a garage, basement or utility room. The commonest is a 275 gallon basement tank.

Outside tank. These are located either at the rear or at the side of the house. These usually hold 275 gallons of oil.

Underground. These tanks are found buried outside the home. They are larger than the other tanks and usually hold 550 or 1000 gallons.
No matter where they are located they must be protected from damage and bunded to protect the environment from leaks.

What have we found out today?

Today we learned about the various types of domestic furnace used in an ordinary central heating system. Furnaces can heat air or water depending on the type and the heated medium is then circulated through the house transferring its heat into each room. We also found out about furnaces which use different kinds of fuel, the common ones being gas, electricity and oil. We also touched briefly on the furnaces which use more sustainable fuels, such as solar, wind and geothermal. Of the more mainstream fuels we found out that gas was by far the cheapest and electricity was the most expensive. Heating oil, as a fuel is becoming less common as the price of oil rises so dramatically. We talked about the costs of buying and installing each type of furnace and looked at the range between the cheapest and most expensive.

We looked at the efficiency ratings of furnaces, namely the AFUE rating and the Energy Star rating. We then looked at a basic calculation to give you an idea of how long it would take to pay back the initial cost of installing a new furnace and to calculate how large the furnace would need to be for a standard sized house.

We looked at the advantages and disadvantages of the furnaces using different kinds of fuels and how the manufacturer provides warranties to try to attract customers with an indication of how long their product can go without breaking down.

We talked about the different components in a heating system and described in general the purpose of each part.

We have found out that installing a new furnace or even repairing an older one is not a job for a DIY project but should always be left to the professionals.

We looked at some of the safety aspects of domestic heating furnaces and talked a bit about the problems of storing heating oil.

I hope you have found this article useful and it has helped you better choose your heating furnace.

Let us know what you think of the information provided in this article.