Title Insurance – you’ve probably seen it listed in the huge piles of paperwork when you are closing your loan. It always seems mysterious so we are here to shed some light on what it is and what you’re paying for. You probably figured out that a lender needs a policy for their own protection and this money either comes from you or the seller. After this then you’ll be asked if you want a title policy as an owner.
Below we will try to uncover how title insurance works, whether you actually need it, and then how much you can expect to pay for it.
Title Insurance; What Is It?
At its core, title insurance protects the policyholder from any financial loss that is related to owning a property. Two separate policies are put in effect at the same time when a home loan is closed. The lender’s policy – which is essential and non-negotiable, and the owner’s policy, which is optional. Both policies are paid upfront and are a one-off cost. They are not a monthly premium that is paid every month with your mortgage.
When you buy a home or are in the process of buying a home, you will work with a title research company whose sole job is to check the ownership history of the property. If all goes smoothly then the current owner of the property has something called a “clear title”. This means that the seller has complete ownership of the property without any claims against the property. If there are claims then they are typically in the form of a levy or lien from a lender or creditor or if there are taxes outstanding then they could even be from the government.
Title Research Company
So the research company doesn’t find any claims outstanding on the property – good news right? It is good news but doesn’t mean that you don’t need title insurance. Title insurance will protect you from anything that hasn’t been discovered yet. You’re probably in good shape if you haven’t found anything yet but if something comes up after you close on the property then this could impact the ownership for years after closing.
These issues could come about because of mistakes in the history of the property an error from the title research company or even a claim from someone linked to the old owners of the property. It could even be something that is held up in court – a lawsuit or a pending legal judgment. There are also cases when it has been a fraud.
Any defect that happens after a loan closing could (if you’re lucky) be just a variety of legal costs. A worst-case scenario is that you lose the property and any money that you’ve invested into it already.
When you work with a lender then they insist on title insurance to protect their own investment in the loan. This of course makes sense because they are liable for most of the value of the property.
Do I Need Title Insurance as an Owner?
There are definitely ways that you can convince yourself that you don’t need owner’s title insurance but before you ignore it you should stop and think for a bit. Before you make a decision you should weigh the cons if you don’t get it.
You might think that the seller is at risk if they have said that they own the property free and clear. After they have said that they are transferring the property to you free and clear of any liens you’d think that it is their responsibility. But you have to remember that they have shifted the ownership and responsibility to the insurance company that has covered them in the deal.
Even though the seller and lender are protected by the title policy you could still be at risk and could lose your stake in the home. You are liable to lose your entire downpayment and any equity that you have in the house or condo. And remember, this could happen months or years after the purchase is finished.
When you think about it this way then buying title insurance is making sure you don’t get bit by a claim years down the line.
How Much Will Title Insurance Cost Me?
Now you understand that a lender’s title insurance policy is in place by default, and now you’re thinking that getting an owner’s policy isn’t a bad idea. Now you’re thinking – how much will it cost to buy both?
In some cases, it doesn’t cost anything and you can negotiate a deal whereby the seller buys both policies. This is a best-case scenario.
If you end up buying both insurances yourself then the policies might not actually cost too much. “Depending on which state you’re buying from it might not cost as much as you think. If you are buying a property in Texas then you might benefit from a buy one get one discounted type deal. If you pay full price for the first policy then you can get the second one for $100. This is because of what is called the simultaneous rate issue.”
Discounts and total prices will vary from state to state. You will probably pay anywhere between $1,000 and $4,500 for most types of title insurance Depending on which state you are buying in it might vary because some states regulate insurance rates. Texas loans are a good example of where it is regulated. If you visit the Land Title Association of America you can find a list of insurers by state and it even drills down to a city-by-city view. You can also find good title insurance providers online.