Ownership records of property often have errors in them. Title Insurance saves the day here. Title insurance is that type of insurance that works by covering all potential damages – small or big, resulting from errors in records of ownership of your property. It is usually purchased when you get yourself a mortgage. A policy caters to one of the two – the homeowner or the mortgage lender, by covering and safeguarding them. However, you’ll most probably end up paying for both types, which is included in your closing costs.
It must be clear that the title insurance pays the policyholder in case there is something wrong with the property’s title. In the United States, one who records the deeds isn’t responsible for any sort of error in record-keeping. Perfection shouldn’t be expected since they don’t guarantee that in the first place. This ignores the existence of anyone with an older document, and the possibility that they might press claim on the property you just purchased if at all, there is any evidence of fraud in the past. Thus, title insurance either provides for the cost of perfecting the imperfect title rights or compensation if you end up losing the property.
The aforementioned lines cleared that only one – either the homeowner or the lender (the financier of the mortgage for the property), is covered by the title insurance. These lenders expect you to pay for lender’s title insurance, the expense duly included in your mortgage closing costs. On the contrary, the homeowner’s title insurance is often optional. Either the seller or the buyer of the property pays for it. Its coverage begins the moment the policy is bought, extending indefinitely into the past. Doing that, it covers all sorts of inconsistencies in the recorded history of ownership.
Reasons to Buy Title Insurance
A lender’s title insurance is to be purchased by default in the mortgage process. Buying a buyer’s title insurance is not mandatory. Still, being the owner of the property, buying a title coverage for yourself doesn’t hurt. This can offer you compensation for damages incurred and legal expenses that you’ll bear in various situations. The insurance offers protection from the issues listed below:
- Previous easements and liens on the property that went unreported before,
- Transfers of ownership rights of property counted as forgery,
- All sorts of errors in the recording of documents, and
- All other title defects that were present before the policy opted.
It’s not hidden that the real number of claims paid out to people who purchased title insurance remains very small. However, land recording in the United States is open-ended in nature. This implies that there are various scenarios, no matter how unlikely, where title insurance can help you save your wallet from falling prey to the truckload of legal fees. In case you’re buying a foreclosed property or one with a troubled past, the chances of a defective title shoot up. In many intricate situations, history shows that people have successfully saved themselves by gaining compensation for the forfeiture of the whole property – credits to title insurance.
How Much Does Title Insurance Cost?
The most common price range, for the compulsory lender’s title insurance, can lie anywhere between $500 and $1,500. It depends on the state and amount of money you wish to borrow in your home loan. Location remains the most influential factor that defines the expense of both the compulsory lender and optional homeowner insurance policies. Title insurers are held to different standards, depending on the state. Some jurisdictions instruct the insurer to shed sweat to confirm the history of the title. This ends up raising the overall cost of providing the title policy as a consequence.
Although optional, the homeowner’s title insurance happens to be much more expensive than the lender’s title insurance. You can end up spending any amount ranging from $700 to $2,000 on the same. The cost of the insurance can be raised by a higher loan amount, lesser down payment, and credit score. Sure, you can skip the homeowner’s title insurance and save a lot. But it would be best if you understood that this insurance policy doesn’t expire ever and holds the potential of protecting you from issues that surface long after you’ve sold the property.
Also, you can always negotiate with the seller and lender, trying to convince them to share the title insurance expenses. This, however, is a customary matter varying from state to state. Some jurisdictions require the seller to pay the entire expense for the homeowner’s title insurance covering the buyer. In case a foreclosure sale is made, the lender is the one that solely exercises the right to the associated property. He may even choose to bear the usual expense for your homeowner’s title insurance. That being said, it is still advised that you ask for a separate title search while buying a foreclosed property. This makes sure that the property is free of all sorts of competing claims.
Having answered the 3 major questions – “what,” “why,” and “how much,” let us tackle the smaller ones.
Whom Should You Trust?
One generally seeks advice from the seller, the real estate agent, and the mortgage lender. While these people can be of different opinions, it is advised to listen to the lender. Both you and your lender share a common interest – getting done with these things well. The lender essentially guarantees you a large amount of money, assuring you that the property you choose to use as collateral is, in fact, actually yours.
Is There a Chance That the Seller Might Be Pushing a Particular Title Company?
You’re the one paying for the title insurance; hence you possess the right to choose the company. If you’re not the one on the paying end, and still wish to select the company, brace yourself to bear some of the expenses. You should always beware if you find the seller pushing his title company. A title search is responsible for finding errors before the purchase is made. Choosing the same company that the seller did long ago increases the chances of getting the same outcome. Often, searchers resort to using the summary of records and not the entirety of actual records. This leaves room for errors to go unnoticed. A fresh look from a new company can put issues in light, thus allowing you to fix them before purchasing.
What Are the Best Companies for Title Insurance?
Many companies offer title insurance through attractive policies. A few major national companies include First American, Old Republic, Fidelity National, and Stewart Title. Most of these major insurers provide quotes online if you provide them your mortgage information. The growth of usage of the Internet has made the title insurance industry take a much more efficient direct-to-consumer approach, thus making it easier for you to go through the different prices offered all by yourself.
It only makes sense that you get the right title insurance. It can very much provide compensation for damages and/or legal expenses in many different situations. It spares you the burden of lightening up your wallet in case an error in the ownership record is found. People tend to ignore buying title insurance to spare a huge expense. You might have to pay a huge deal for this short-term relief in the future. Hence, it is advised never to skip this important step in purchasing a property. There is a big market full of options. Choose wisely, and rest assured that you won’t face unexpected “surprises” in the future.