Title Insurance 101: What Is It and How Much Does It Cost?

by | Feb 5, 2021 | Closing Process

There is so much more to buying a home than paying for a monthly mortgage. You will be presented with various types of insurance to protect your investment.

One very important insurance you should know about is call title insurance. This protects you in the event that there are some serious title issues that may come up.

Let’s discuss this in more detail:

What is a title?

A title is a document that proves an individual legally owns a property.

When you buy a home, you “take title” to the land. What this means is you are establishing legal ownership that is confirmed by public land records.

Over half of all Real Estate transactions end up with title-related issues whether they be minor or disastrous.

What is title insurance?

The difference between title insurance and regular insurance is that title insurance protects you from events that may have happened in the past, whereas regular insurance protects you from events that may occur in the future.

When you begin the process of closing on your house, the title company will do a title search. This search will discover any issues with the title that may be legally challenging. It is also required by most lenders that this search be performed to protect themselves and the deal from falling through.

Title insurance then protects you, as the potential homeowner, from any legal disaster that may come up from the title search.

What may come up on a title search?

This includes, but is not limited to:

  • Disputes between prior owners over wills (there could be inherited heirs contesting the will)
  • Liens for unpaid property taxes
  • Liens for unpaid contractors who worked on the home
  • Clerical errors on courthouse documents
  • Fraudulent claims against the property

Owner’s vs. lender’s insurance

The two types of title insurance are lender’s and owner’s insurance. Lender’s insurance protects who is issuing the mortgage loan.

The cost of this type of policy is usually a percentage of the loan amount. The more payments you make on your loan, the smaller this number becomes. Once you pay off the loan, the policy will end.

The owner’s insurance protects the homebuyer from any title-related issues that may arise before, during, and after a title search.

This policy price is based on a percentage of the home’s sticker price, unlike the lender’s insurance. There is usually a one-time title insurance fee during the time of closing and this policy lasts as long as you own the home.

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