Buying a home is exciting and it can be a little overwhelming. As you make your way through the process, it's important to consider one of the most critical aspects: title insurance. Title insurance safeguards homeowners from unexpected financial losses relating to property titles with potentially hidden title defects - making sure their first step on the path to that dream house means they reach it safe, secure, and ready for years of happy memories ahead! In this blog post we will explain exactly what title insurance covers so all future homeowners can rest easy when signing those dotted lines.
What is Title Insurance?
Title insurance is a policy that protects the homeowner from financial losses due to defects in the title of the property. A title defect is any issue that affects the ownership of the property, such as:
- Errors in public records
- Liens or judgments against the property
- Undisclosed heirs or missing heirs
- Fraudulent or forged documents
- Easements or rights of way that affect the property
If a title defect is discovered after the purchase of a home, it can lead to legal disputes, financial losses, and even the loss of the property. Title insurance provides protection against these risks.
Why is Title Insurance Important?
Title insurance is important because it provides protection against financial losses due to defects in the title of the property. When purchasing a home, the buyer expects to receive clear ownership of the property. However, title defects can occur that affect the ownership of the property, even if the seller has provided all necessary documents and information.
Title insurance provides peace of mind for the homeowner, knowing that they are protected from financial losses due to title defects. In the event of a title defect, the title insurance policy will pay for legal fees and other expenses incurred in resolving the issue. This can save the homeowner thousands of dollars in legal fees and other costs.
Types of Title Insurance
There are two types of title insurance: owner's title insurance and lender's title insurance.
Owner's title insurance is purchased by the homebuyer and protects them from financial losses due to defects in the title of the property. It lasts as long as the homeowner owns the property. This policy comes in handy if you decide to refinance your loan in the future. You can use your current policy to get a "re-issue" rate when you refinance, which will save you money in closing costs at that time. There are two basic owner's title insurance options, standard or enhanced owner's title insurance.
Lender's title insurance is purchased by the Buyer and protects the lender from financial losses due to defects in the title of the property. It lasts until the mortgage is paid off. The lender requires you to purchase lender's title insurance at the time of closing. However the lender's title insurance is in place to protect the lender's interest in the property, it is not there to protect you as the homeowner.
While lender's title insurance is required by most mortgage lenders, owner's title insurance is optional. However, it's important for homeowners to consider purchasing owner's title insurance to protect themselves from financial losses due to title defects. Title insurance is a one time cost at settlement. You do not have any ongoing premiums after closing in order to maintain your coverage.
When buying a home, title insurance is essential in safeguarding against potential financial losses. Homeowners can feel secure knowing that regardless of any existing issues with the property's legal documentation they are covered by an owner's investment - potentially saving them hundreds or even thousands of dollars! So to make sure you're protected in your new venture as a homeowner, don't forget about getting yourself this important protection.
During my nearly 25 years in the real estate profession it is rare that there has been a title insurance claim, however they do happen from time to time. There was a period of one month in which we had 3 Sellers who all had title insurance claims for totally different reasons. All 3 of their transactions would have been in major jeopardy. Fortunately all 3 Sellers had purchased owner's title insurance when they bought their homes, so they were able to file a claim with their title insurance company and proceed to settlement without any delays or out of pocket costs. Each claim was ultimately settled by the title insurance company, so the new Buyers will not have to worry about those particular issues coming up again in the future.
I personally have purchased owner's title insurance for every home I have ever bought for myself. I have never had to file a claim, but I felt the additional cost for peace of mind was worth paying. It is a personal decision that each Buyer needs to make for themselves when it comes to owner's title insurance, however your lender will require lender's title insurance no matter what. The exact cost of the policies will be shown on your Good Faith Estimate of closing costs, so there will not be any surprises as to what you can expect and you will be able to make an informed decision.
