If you’re buying a home, you need to know about title insurance. It’s one of the many closing costs you will likely encounter and pay for before you close on your new home. There are a couple of types of title insurance, each offering different coverage. Before you close on your home, you should be sure to consider this type of insurance policy and whether you need it.
Understanding Title Insurance on a Property
Title insurance can protect mortgage lenders and property owners if there are defects in the title of a property. This can include errors in the documents as well as unforeseen claims of ownership or the unpaid mortgage of a previous owner. Most mortgage lenders require borrowers to purchase a lender’s title insurance policy to receive their loan and close on the property. You can also purchase a separate owner’s title insurance policy if you want to protect yourself and your investment in the property. Lenders do not require homeowners to have an owner’s title insurance policy, but it’s usually a good idea to consider purchasing it regardless.
How Does Title Insurance Work?
When you purchase title insurance, you’ll only pay a one-time fee at the time of closing. If you purchase both a lender and an owner’s title insurance policy, you’ll pay two fees for the policies. During the application process, the insurer will research the history of the property you are looking to cover to look for potential issues with the property title.
Title insurance covers a wide range of situations that could come up after closing on the property. Some of the more common situations include unpaid judgments and liens on the home and unpaid property taxes. It can also cover situations such as fraud if the home was not truly owned by the grantor.
Why Is Title Insurance Important?
While it’s not required for property owners to purchase an owner’s title insurance policy, it is recommended. It requires more money upfront at closing, which can be unappealing, but the benefits of having a title insurance policy cannot be overstated.
An owner’s title insurance policy helps protect the homeowner’s finances as well as their ownership of the home. Without title insurance, homeowners could be held liable for large expenses if there are back taxes on the home or if there is a lien on the home that was not discovered during the title search. You also risk losing the house entirely if an issue arises and you don’t have an owner’s title insurance policy. This can happen for a few reasons. If there is a lien against the home that does not get settled, the lienholder can pursue seizure of the property, causing you to lose ownership of the home. You could also be forced to sell the home if you have to pay a large settlement and can no longer afford to keep the home.
What Does Title Insurance Cover?
Title insurance policies differ, but they typically cover issues such as:
- Unknown liens on the home
- Ownership disputes or disputing wills
- Errors in public records
- Fraudulent or faulty deeds
- Encroachments
- Unrecorded easements
- Judgements against the property
The policy effective date of a title insurance policy is the date of closing. An owner’s title insurance policy covers issues that are related to events that occurred before the policy's effective date.
How Much Does Title Insurance Cost?
The cost of title insurance can vary depending on several factors. The biggest factors are the location of the home and the home’s purchase price. Each insurance company sets its own rates, so the cost will depend on that as well. In most cases, you’ll only need to pay a one-time fee when you close on the home.
How Long Does Title Insurance Coverage Last?
The policy term for title insurance policies depends on which type it is — a lender’s title insurance policy or an owner’s title insurance policy. A lender’s title insurance policy lasts until the mortgage is paid in full. If you make regular monthly payments throughout your mortgage term, the policy ends when you make your last payment. If you sell the home and use the proceeds to pay off the mortgage, that’s when the lender’s policy will end.
Owner’s title insurance policies last for as long as the person who holds the policy owns the home. If the owner rents out the home, the policy will remain active. The policy can also remain active after the owner dies if ownership is transferred to their heir.
How to File a Claim with Your Title Insurance Company
If you receive notice that there has been a title claim filed against your property, you should contact your title insurance company immediately. In most cases, you’ll call the insurance company to let them know that you need to file a claim. Some insurance companies may also have an online claims form you can fill out to initiate the process. Others might require that you provide notification of a claim against your property in writing. In this case, you would write and send a letter to the company as soon as possible.
Once you’ve connected with your insurance company, it will guide you through the claims process. The insurance company will determine the most efficient way to resolve the issue. In some cases, this means negotiating with the person or company who filed a claim against your property. If resolving the issue requires paying the person or company who filed the claim, the insurance company will take care of the payout. The insurance company should keep you informed of any updates throughout the process, but you can also contact it if you have questions.
Is Title Insurance Necessary?
Now that you have a better understanding of what title insurance is, it’s time to consider whether you want to purchase it. If you’re taking out a mortgage, you won’t have a choice when it comes to the lender’s title insurance policy — you’re going to need to purchase that. Adding yet another cost to an expensive process can be stressful. But when it comes to the coverage that an owner’s title insurance policy provides, it can be worth it in the long run.
Frequently Asked Questions
Can I get title insurance after closing on a property?
If you’re taking out a mortgage, the lender will require you to pay for the lender’s title insurance policy before you close on the home. You can purchase an owner’s title insurance policy after closing.
Can title insurance be transferred to a new owner?
No, the title insurance cannot be transferred to a new owner. If you sell your home, the buyer will have to pay for their lender’s policy and an owner’s policy if they choose to have one.
Is title insurance the same as homeowners insurance?
No, title insurance is a separate policy with a separate set of coverages. Title insurance only provides coverage for issues related to the title of the home, while homeowners insurance provides coverage for the property.