What is Title Insurance?
When you buy or refinance a home, you have a lot of things on your mind. Chances are, title insurance isn’t one of them. But, it should be.
Title insurance is protection against loss arising from problems concerning the title of your property.
Getting title insurance is one of the major steps home buyers take before closing on a home purchase. When you purchase your home, you receive a deed, which shows the seller transferred their legal ownership, or “title” to their home, to you.
This insurance can provide protection if someone later sues and says they have a claim against the home from before you purchased it. Common claims come from a previous owner’s failure to pay taxes or from contractors who say they were not paid for work done on the home before you purchased it.
Cost and Coverage
The cost varies, depending mainly on the value of your property. The important thing to remember is that you only pay once, then the coverage continues in effect for so long as you have an interest in covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of the title to your buyer, your coverage continues.
Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.
Your closing agent will launch the process of getting you title insurance soon after your purchase agreement is signed. You will probably need to pay a one-time fee of around $1,000 for title insurance.
Title insurance protects against claims from defects such as:
- Improperly recorded documents
- Outstanding liens
- Missing Heirs
- Conflicting Wills
Types of Title Insurance
There are two types of title insurance: lenders’ insurance and owners’ insurance.
Almost all lenders require the borrower purchase a lender’s title insurance policy to protect the lender in a situation where the seller was not legally able to transfer the title of ownership rights.
A lender’s policy only protects the lender against loss, but an issued policy means a title search has taken place, which can give some assurance to the buyer. However, title searches are not 100% fool-proof, hence the need for insurance.
Owner’s insurance is often taken out by the seller to protect the buyer against the issue of ownership rights.
Even though you’ll pay for this policy only once, your coverage will last as long as you own your home. A real estate purchase may be the largest financial investment you ever make. So, when you buy an owner’s policy of title insurance, just think of it as buying some peace of mind!
Reference/Photo Credit: bankrate.com