Title Insurance: What it Is and How to Get It
When you’re buying a new home, your head may be swimming with all kinds of things: excitement, relief, maybe a little purchase anxiety. And then, there is all that paperwork you have to read and sign.
One of the items in the pile of “things to do” is to buy title insurance. It’s a standard step towards ownership.
What is It
Title insurance, simply put, protects your rights to own the home. There are two kinds of coverages:
Lender’s title insurance is required by the mortgage lender for financial security if there is ever a title issue to deal with. It is the responsibility of the buyer to pay for it, but it protects the mortgage company. If you don’t need to take out a mortgage to pay for a home, it is not needed. A few states require that lender’s pay for the policy, but the majority do not.
Owner’s title insurance is optional, but just as important. It protects you financially if something goes wrong with the title, and you must pay a one-time fee. Though not required, experts recommend purchasing it.
What Does It Cover
Both owner’s and lender’s title insurance protect you in the event that:
- A third party comes forward and claims the buyer doesn’t have rights to the property.
- There are problems such as liens, errors in the public record and unexpected heirs who say they have a stake in the home.
- A lien, or liens, can tie up the title because debts were not paid off. These legal claims are to be paid from the sale of the home.
- Somebody in the past committed fraud. Maybe the seller didn’t really own the home, or a previous co-owner actually forged a signature on important documents.
What it Doesn’t Cover
It doesn’t protect you against known issues, just unknown ones. Before closing on the house, the lender researches the title thoroughly, searching through related public records. They will then provide you a preliminary report, which will be reviewed by interested parties, including you, to see if there are any problems
How Does It Work
The coverage can be contested at any time, sometimes even years down the road. Be sure to read the preliminary title report fully so nothing is missed. Otherwise, if there’s an irregularity in the title it is assumed that this problem was okay with you.
Someone might show up seemingly out of the blue, claiming partial ownership of the home, or a previous owner might have used the home as debt security and the debt was not repaid. The first thing you would do is call your insurer. They can decide to fight it in court, or to not contest it because of the probability that the other party will win. If the issue is a lien on the home, the seller might be willing to pay it off.
If the lender fails to resolve a title issue, the title insurance company will compensate you and/or your mortgage lender.
Should the court rule in favor of the individual who legally owns your home for example, the lender will receive reimbursement for what you owe on the mortgage. However, your down payment and principal payments will be lost. That’s when your owner’s title insurance comes in to cover your losses.
How Much Title Insurance Costs?
How much you pay for each kind of title coverage depends on the insurance provider’s practices, the value of the home, and where you live.
According to TheMortgageReports.com, the average cost of owner’s title insurance $850 and the average for lender’s title insurance is $550. A one-time premium can be between $300 to more than $2,000.
You would pay a one-time premium at closing and you’re covered for however long you own the home.
Keep in mind that some states regulate how much you can be charged, and that you could negotiate with the seller to have them pay for both lender’s and owner’s title insurance policies.
Do You Really Need Owner’s Title Insurance?
There are several points to keep in mind when it comes to title insurance.
- Statistics show that only 3 to 4 percent of money paid into premiums is ever paid out by the title insurance provider in claims.
- Having owner’s title insurance gives you peace of mind knowing that, if needed, you’re covered.
- You might decide that your one-time premium payment for owner’s title insurance make the policy worth the cost, because it is there for you for as long as you own the house.
If You Aren’t Taking Out a Mortgage
When it’s time to buy your home and you don’t need a mortgage. Instead, you might pay in cash. Even if you don’t need lender’s insurance, it might be well worth it to buy an owner’s title insurance policy. Hopefully you’ll never need it, but you could save substantially if there are any unforeseen issues in the future.
How to Get Title Insurance
When you take out a mortgage to buy a home, the closing agent will often choose your title insurer for you. Or, you have the option of shopping around to find the best deal. To shop around:
- Ask friends and family for recommendations for closing service providers.
- Get a price quote and references from any closing service provider you decide to consider.
- Contact references to learn about their experiences.
- Choose your closing service provider.
- Contact your lender to let them know who your closing service provider is.
You Will Need Home Insurance
When you buy a home your mortgage lender will want you to purchase home insurance. Shop around to find the policy and provider that fits your needs best. Use our quote tool to receive and compare quotes.