Buying a home usually includes buying various types of insurance to protect your property. When buying a home, you “take title” to it and establish legal ownership.
A title insurance policy protects you against the possibility that someone else might have a claim on your home. Read further to learn about what title insurance is and why it’s important.
What is it?
If you need a mortgage to buy Real Estate, your lender will likely require you to buy a title policy from a title insurance company.
This ensures the homeowner, and their lender will be okay if the seller or previous owners didn’t have the absolute ownership of the house.
Although it’s a cost that homebuyers incur, getting a title policy from a title insurance company is critical to establishing peace of mind.
Why do you need it?
Holding a title insurance policy means that you and your lender are protected against any financial loss or title issues. Before taking the title, a title search will be done on the property to look for items such as:
- Disputes between previous owners and wills
- Liens on unpaid property taxes and contracted work
- Clerical problems in courthouse documents
- Fraudulent claims against the property and forged signatures
While some homeowners may never actually use their title insurance, its existence offers protection against financial loss.
Lender’s insurance vs. owner’s title insurance
There are two types of title insurance: lenders and owners. Lender’s title insurance protects the lender, not the buyer, from incurring costs if a title dispute pops up after closing.
The owner’s title insurance is optional but highly recommended. Without it, you’ll be paying the bill for all costs resolving a title claim. This can cost thousands and thousands of dollars.
You can purchase two types of title insurance: basic and enhanced. An enhanced insurance policy offers more coverage for things like mechanics liens or boundary disputes.
How much does it cost?
On average, title insurance is around $1,000 per policy. But this amount varies widely and depends on the price of your home.
Title premiums can vary from a couple of hundred dollars to a couple of thousand dollars. Some factors that play a role in this cost include the title search, examination, and expected cost of any title defects.
Unlike other types of insurance, a title insurance policy is paid with a single premium during escrow while closing for your mortgage.
Check out this tool to help you figure the cost for your area and purchase price.
How to save on insurance costs
In some states, title insurance premiums are the same no matter who you work with. But in most, you can potentially save by shopping around.
Here are a few different ways to save on title insurance:
- Shop around
- Bundle the lender’s and owner’s insurance policy
- Negotiate add-ons
- Negotiate with the seller
Resolving a title issue can be stressful. Find a company that will help you through the process. Read reviews and talk to your Real Estate Agent for recommendations.