Great, you’ve purchased your first home or maybe you’ve just refinanced your mortgage, but what are all those fees and charges in your closing costs? One cost you may find buried in your paperwork or purchased on the recommendation of your real estate broker is Title Insurance.
What is Title Insurance?
Title insurance is protection against loss arising from conflicts over the title ownership of your property. Problems with the title can limit your use or enjoyment of the property, as well as bring legal and financial headaches.
Insurable title problems may include, but are not excluded to:
- Errors or omissions in deeds
- Mistakes in examining records
- Forgery
- Undisclosed heirs
Before you bought the home or land, it probably went through several ownership changes. How can you be sure that there are no problems with the home’s title and that the seller really owns the property? There may be unpaid real estate taxes or other liens, forged signatures by old owners or disputes from divorce settlements. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
If you need a mortgage you will need title insurance, at least until the loan is paid, because all mortgage lenders require such protection for an amount equal to the loan. It lasts until the loan is repaid. As with mortgage insurance, it protects the lender but you pay the premium, which is a single-payment made upfront.
But Didn’t We Do a Title Search Before We Closed?
Yes, it is possible a title professional performed a title search to reveal a title problem that may be fixed before you go to closing. This search typically involves a review of land records going back many years. However, what happens if a title issues comes up after you move in? To help protect you in these events, it is recommended that you obtain Title Insurance.
The Owner’s Title Policy
The homeowner’s Title Insurance, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you own the property. Only an Owner’s Policy fully protects the buyer should a covered title issue that was not found during the title search.
An Owner’s Policy provides assurance that your title company will support you with legal and monetary defense if needed — to help pay valid claims and cover the costs of defending an attack on your title. You also have the option of purchasing a policy with expanded coverage.
Be sure you request an Owner’s Policy and ask how it is paid for where you live. No matter who pays for the policy, there fee is a one-time fee paid at closing. And an Owner’s Title Policy protects you for as long as you or your heirs own the property.
The Mortgage Lender’s Loan Policy
Title insurance for mortgage lenders title insurance is called a Loan Policy. Most lenders require a Loan Policy to protect the lender up to the amount of the mortgage, but it doesn’t protect the owner. The Loan Policy amount decreases each year and eventually disappears as the loan is paid off.
Who Pays for Title Insurance
Many home buyers purchase their own title insurance. Sometimes sellers pay for owner policies as part of their vow to deliver a clean title to the buyer. Home buyers also have an options of purchasing it as an add-on to the lender policy (which is sometimes advisable since the additional cost above the cost of the lender policy is relatively small.
Do I Need to Purchase a New Title Insurance Policy When I Refinance?
No. You will not need to purchase a new owner’s title policy, but you will be required to purchase a new lender policy since the existing lender’s policy terminates when you pay off the mortgage.
Insurers may offer extension on existing policies for borrowers who refinance at a discount from the standard premiums. Be sure to ask if you qualify for any discounts on lender or owner title insurance.
Learn More about Title Insurance
Ask your local title company for an explanation of available Owner’s Title Policies, Lender’s Policies and expanded Homeowner’s Policy so you can decide which title insurance policy is the best one for you.