A home purchase is one of the biggest investments you can make so adding a layer of protection against property ownership issues makes sense. That’s where title insurance comes in. As a quick refresher, a “title” serves as proof that you are the owner with rights to the property. Read along to find out how title insurance works and why it is vital in a home purchase.
Title insurance is meant to protect home buyers and lenders from any damages or losses due to a “bad title”. A title can become “bad” due to code violations, back taxes, liens, and conflicting wills. Another common situation is where, after the sale of a property, it turns out that the seller does not have any legal claim to it or the property is under dispute.
To avoid these headaches, work with a title company and purchase a policy for protection against issues that could render your title invalid.
Title insurance covers any unexpected issues with your home’s title that a title agency may have missed after doing a title search. For example, if you discover that there is unpaid property taxes or mortgage associated with your home and the title company missed it, the party owed money can file a title claim against you and demand payment since you now own the property.
In this scenario, title insurance can cover the costs of whatever is wrong including liens, encroachments, easements, back taxes, HELOCs, forgeries, conflicting wills, and unknown claims to the property.
There are 2 types of title insurance: lender’s title insurance and owner’s title insurance. Both types provide needed protection for the participants in a real estate transaction. Let’s take a look at what they cover.
Lender’s title insurance is usually included in your mortgage closing costs and protects your lender from claims against the property that could negatively impact them. Lenders always require the borrower to purchase a lender’s title insurance before applying for a loan.
An owner’s title insurance protects the buyer against potential hazards that may have slid under the radar. This policy gives you added peace of mind in the event that your title company missed some issues that can cause problems down the road. If you are suddenly faced with unpaid tax issues, or other inheritance and property disputes, your insurer can negotiate and cover expenses for you.
The cost varies by state, the cost of your home, and whether you are buying or refinancing so it ranges from a few hundred to several thousands of dollars. Title insurance is an added cost but worth it. The consequences of not purchasing an owner’s title insurance can be dire especially when unpaid taxes, outstanding liens, fines, and code violations suddenly crop up from seemingly nowhere. Without title insurance, the financial burden will be shouldered solely by the uninsured homeowner.
A home purchase can be a stressful experience when you don’t know what to expect. Fees like title insurance may seem frivolous, but once you know the alternative and the huge risk on your investment without it, the added cost actually gives peace of mind. If you’re in the market for a new home, get in touch with one of our loan experts and we’ll provide you with all the information you need to purchase a home with ease and confidence.