Published on: June 3rd, 2020 | Written by Jimmy Vercellino
Signing title insurance document

Most home buyers have heard about private mortgage insurance. You may even be able to avoid having to buy PMI if you make a large enough down payment or get a certain type of loan.

Title insurance is another type that your lender will ask you to purchase. Most lenders do require homebuyers to purchase it to protect them from financial loss if a claim is made against the title of the property.

What Is A Title Search?

A title search is conducted before the sale of a property is finalized. In most cases, the title insurance company handles the search. Lenders and homebuyers can also do their search provided that they have the resources and time to do it completely.

A title search checks into the complete history of the property. This includes searching through public land records, tax liens, and other judgments that might affect the ownership of the property.

What Types of Title Issues Can Occur?

A thorough public records search helps to prevent issues with the title. Some problems can still slip through the cracks. This is where title insurance kicks in to protect the lender and buyer.

There are sometimes missing heirs that can show up years later to claim that they have legal rights to ownership of the property. Unpaid taxes, judgments or liens may also turn up after a house is sold, and the new homeowner might be held responsible for paying these amounts. In rare cases, fraud may occur. This might happen if a person falsely represents themselves as the owner of a property.

If a title issue occurs, there is the possibility that another person or entity may have a claim to the value of the property. Pre-existing rights to ownership or judgments could be granted by the court to someone who is not the current homeowner.

What Is Lender’s Vs. Owner’s Title Insurance?

There are two main types of title insurance. Lender’s insurance is the type that you are required to purchase. When you purchase this insurance, it is important to remember that a lender’s policy only protects the mortgage company. Homeowners can still lose out on their home equity while also being forced to move out of their house. The owner’s title insurance is purchased separately, and it protects homeowners from financial losses if a title issue arises.

How Much Does This Insurance Cost?

The cost of this type of insurance is typically governed by state law. It is usually calculated based upon the value of the property. It can range anywhere from a couple of hundred dollars to several thousand.

How Can Buyers Save On Title Insurance?

Saving any amount of money is helpful when you are buying a house. You may be able to bundle the lender’s and owner’s insurance together to get better rates. Some insurance companies offer the option of doing a reissue rate with the seller’s current title insurer. Sellers might also be willing to buy title insurance as a concession during the closing process.

Title insurance is one expense to plan for in the closing costs for a property. Paying this one-time fee protects the lender and the buyer from the risk of having someone claim the property after the final sale is complete. Considering that a house is typically a person’s biggest investment, it is well worth the peace of mind that paying for a title search and insurance provides.

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Author

Jimmy Vercellino

Mortgage Originator, Specializing in VA Loans

Jimmy Vercellino, a Marine veteran, specializes in helping military veterans benefit from the VA Loan Program and buy the home of their dreams.