First of all, isn’t it amazing that you are buying yourself and your family home? So, just enjoy that feeling for a moment before we jump into the nitty-gritty of title insurance. It is a high probability that this purchase to be one of the largest purchases of your life until now. And for that very reason, you wouldn’t want to take a chance regarding the ownership of your home after closing on the home sale. Would you? 

That’s where our topic of the blog, title insurance comes into play. Title insurance is an important policy you should know about when buying a home.

What is title insurance?

So, your buying a home is your taking title to it. When you take title to a home, you establish your legal ownership over it. What a title insurance policy does is it protects you against the possibility of someone who may make a claim to your home.

Title insurance ensures that you and your lender will be fine even when the home seller or previous homeowner doesn’t have absolute ownership of the house. However, if you buy with a cash offer on house, you are not required to buy a lender’s title insurance.

If you need a loan to buy a home, your lender will need you to first buy a title insurance policy from a title company. While it is a cost you have to incur, buying a title policy from a title insurance company is essential for you to have peace of mind.

What does title insurance do?

The title to a home entails the legal rights of the owner over the property. So, when you buy a home, you are required to make sure that the property has a clear title and that it is free from any liens or ownership claims. If you don’t buy title insurance, the responsibility to remedy such issues falls on you as the new owner should they arise.

Title insurance protects you, a home buyer, as well as mortgage lenders against any potential problems related to the property’s deed after the ownership is transferred. In case a title dispute arises during the sale or after closing, the title insurance company pays for legal damages as specified in the policy.

While some states have fixed the title insurance premiums for lenders, others are following the market, giving you the freedom to shop around for the best policy.

What’s included in title insurance costs?

In the title insurance quote, you can find the title company fees itemized. While some states have laws in place that require the fees to be bundled into one title cost quote, others require them to be itemized. You can get to know about title closing costs from an escrow officer.

Below are the costs that are typically included in the title insurance quote:

• Endorsement fees
• Deed preparation fee
• Closing protection letter
• Tax and other certificates
• Government recording charges
• Wire fee
• Document preparation fee
• Electronic document fee
• Transfer tax
• Settlement fee
• Notary fee
• Title search fee
• Overnight mail charge

How much is title insurance?

So, coming to the main query to address in this article—how much is title insurance? The average cost of title insurance is about USD 1,000 per policy. However, the amount varies from state to state and is dependent on the purchase price of your home.

If your state lets insurers set their own rates, which is the case in most states in the country, you can find the quotes varying by hundreds of dollars. And so, it’s a good idea to shop around and look at a few options to get the coverage your mortgage lender and you need without adding another big amount to your closing costs.

The price of title insurance is directly proportional to the purchase price of your home or your total loan amount. And as title insurance is a heavily regulated industry, the types and costs of title insurance policies vary from state to state. The Department of Insurance in your state can give you information on the pricing regulations in your state.

In states like Texas and Florida, the government fixes title insurance premiums. So, you pay a specific amount no matter what the other variables are. States like New Mexico and California have unfixed premiums meaning you can shop around here.

Unlike other insurance types, a title insurance policy is paid up with a single premium as closing for your mortgage during escrow. Also, if you are buying with real estate refinancing or resale, you are eligible for a reissue rate that can offer you a substantial discount off the regular premium.

The premiums of title insurance can vary from a couple of hundred dollars to a couple of thousand dollars. Factors like title search, examination, expected title defect cost, etc. can affect your premium cost.

Types of title insurance

Title insurance majorly comes in two variants:

• Lender’s policies: As per the name, the lender’s policy covers the lender who lends the money toward the purchase of the home. Lenders usually need buyers to buy a lender’s title insurance. Also, if a lender loans you money to make a big purchase, they’d want you to protect their monetary interest against any potential title problems. 

• Owner’s policies: Again, as per the name, the owner’s policies protect you, the home buyer. You do not absolutely need to buy an owner’s title insurance for the sale to go through as the lender or the seller won’t be affected in case there are any property title issues. You can get the owner’s policy for added protection and to have peace of mind.

So, when you avail of a mortgage, your lender will need you to get a lender’s title insurance policy. It protects your lender in case there are claims to the property. And, home owner’s title insurance is a separate policy altogether and is optional. 

Owner’s policy protects you against losing your equity and right to your home if a claim to ownership arises post-purchase. Even if you buy a new home, defects can exist as the land would have had previous owners and the builder may not have paid all the contractors involved. It is a small price you pay to protect your interests.

How does title insurance work?

An owner’s title insurance covers the costs that may incur to pay off an undiscovered lien or to defend you against a lawsuit filed by someone claiming a right to your property. It can even provide a cash settlement to you if you unwittingly purchase a property with a forged deed from a seller who did not in reality owns the home. Owner’s insurance also protects your ability to sell your home in the future if a problem turns up in a title search later.

Let’s talk about the lender’s policy. It does not protect you but you are required to pay for it. Say you lose your home after finding out that the property was fraudulently sold to you. Then, you will not continue to pay the mortgage. Your lender can then file a claim with the title insurance company to recoup the mortgage payments expected from you.

Also, if you stopped paying your mortgage, the lender can foreclose to recoup its losses by selling your home. But if you find that someone else has a right to the home, none can foreclose the loan.

In summary

In summary, title costs are worth it. Transferring ownership of a home is complicated with a lot of steps to follow. You must ensure that the transfer is done correctly and you have full, undisputed ownership of your property.

Any associated fees that assure and prove legally that the house and property are yours are worth their charge. You can work with your real estate agent or attorney to understand the fees, whether a cash offer on the house changes that, and if any negotiation is possible.