Title Insurance: This is another one of those mysterious fees buried in the pile of documents that you will receive when your loan is closed. Who knows what it is? All you understand is that lenders need a policy for their protection, and you or the seller will have to pay for it – and then you will be asked if you want an owner’s title policy as well.
Here’s how title insurance works, how to decide if you need your own policy, and how much you can expect to pay.
What is title insurance?
Title insurance protects the insured against financial loss related to the ownership of property. There are two policies in the mix at closing a mortgage: the lender’s policy, which is mandatory, and an optional owner’s policy. Both are a one-time upfront cost, not a monthly premium that will be added to your mortgage payment.
When you are in the process of buying a home, a title search company will check the ownership history of the property. Ideally, your new home has what is called a “clear title”. This means that the current owner, who is selling you, has a full interest in the property, with no legal claims against it. Claims can take the form of a lien or levy from a lender, creditor or – in the case of taxes owed – the government.
If the search company finds no outstanding claims or title defects, why buy title insurance? Because an undiscovered problem could darken the ownership of the property for years after purchase. It could be an error in the history of the property, an oversight by the title seeker, even a hitherto unknown heir. Maybe there’s a lawsuit or judgment going on. A title issue could also arise due to fraud.
A defect in title occurring after a loan is closed could, at a minimum, result in various legal fees and, in the worst case, the loss of your property and the money you invested in it.
Lenders require title insurance to protect their interests in the loan. And that makes sense, as they are chargeable to the majority of the home’s value, especially during the early years of the mortgage.
Do you need owner’s title insurance?
Can you argue against purchasing a homeowner’s title insurance policy? Sure. But let’s think carefully before making a decision.
“Here’s the deal: When you buy a house or build a property, you usually get a deed of collateral,” says Martin Farris, a mortgage broker in San Angelo, Texas. “It means the salesperson says, ‘This is a good deed. I own this free and clean property. I transfer it to you free of all other privileges. ‘”
So any defect in property would be the responsibility of the seller, right? And as a buyer, you are clear: any legal action would be against the seller. But remember that the seller has transferred this risk to the insurance company. And even if the lender is protected by the title policy, your interest in the house could be at risk. It would equal your down payment and any equity you have. Again, a claim of title can arise several years after your purchase.
For many homebuyers, purchasing a homeowner’s title insurance policy is about security rather than healing.
How much does title insurance cost?
A lender’s title insurance policy is a given, and maybe now you think a homeowner’s policy isn’t a bad idea. How much will it cost to buy both?
Sometimes nothing. You may be able to negotiate to have the seller pay for both policies.
But if you end up bearing the cost, your policy might not cost much. “When you buy two title policies in Texas, the first you buy full price. The second you buy and they charge you a hundred dollars for it,” Farris says. It’s a discount called a “simultaneous emission rate” – a kind of “BOGO”.
Prices and discounts vary from state to state. You can expect to pay between $ 1,000 and $ 4,000 for title insurance, according to CourtHouseDirect.com, a courthouse data research website.
the American Land Titles Association provides a list of insurers by state and city. There are also online title insurance providers, such as EntitleDirect.com.