This important policy protects you from the possibility that your seller or previous sellers didn’t have clear ownership of the home. This could prevent them from rightfully transferring the ownership to you. Please keep reading to understand what title insurance is, how it works, why you need it, and how to acquire it.
What is title insurance?
Obtaining a title is very important when buying a home. It is the legal concept that you are the legal owner of your home. When buying a home, your mortgage lender orders a title search from a title company to check if there are any defects related to your title, which could affect your homeownership or that of your lender. These defects could be in the form of levy or lien from a creditor, lender, or taxes if related to the government. But if there are none, your home will be termed as having a “clear title,” meaning that the seller has complete ownership of the home.
However, even with a “clear title,” unforeseen financial or legal problems could arise regarding your property during the buying process or even years after enjoying your home. These problems could lead to your home costing you more money and even, at times, being taken away from you.
Title insurance is an important policy that protects you, the homebuyer, and the lender from any third-party claims on your home that come up during or after your home buying process.
A third party is anyone other than you the current homeowner. For example, it could be a homeowner that you are unaware of and did not come up during the initial title deed search. If any disputes arise after or during the sale, the title insurance company will pay for any legal damages, depending on the policy.
What are the types of title insurance?
There are two main types of title insurance. They include;
Lender’s title insurance
Also known as a “mortgagee’s policy,” a lender’s title insurance policy protects the company giving you the mortgage. The lender has the greatest financial risk in a home sale. Therefore, they need to ensure that their investment is well protected even in the case of title issues. A lender’s title insurance is important when you take out a mortgage for refinancing or buying a home. However, if you’re buying a home without a mortgage, you may not have to pay for a lender’s policy.
Owner’s title insurance
An owner’s title insurance is designed to protect you, the homebuyer, from title issues, and the seller caters for it. The owner’s title insurance coverage amount is normally the same as the purchase price, and it remains constant for as long as you own the home. This policy is optional and is a one-time purchase.
Why is title insurance important?
Title insurance is very important, especially for you as a homebuyer. If a claim arises after buying, it can protect you from losing your right to live in your new home. Though the home may be new to you, it may have other owners who may not be in the government records for one reason or another. Also, it could be having minor issues, such as previous owners who failed to pay the builder, which could cost you financially.
Title insurance is important for you as a homebuyer as it protects you against the following;
- Property survey errors
- Errors on the property deed
- Liens from taxing entities, previous lenders, or contractors
- Boundary disputes
- Improperly recorded documents
- Conflicting wills
- Building code violations by a previous owner
- Claims related to a forged power of attorney
How to Get Title Insurance?
Once your purchase agreement is signed, your closing agent or escrow will launch the title insurance process for you. In most cases, your attorney or closing agent will choose your title insurer for you. Most of the time, the process is standard and likely to succeed without any challenges.
The cost of title insurance varies from one state to another. Therefore, it is advisable to research how much it costs in your state before starting the home buying process.
Bottom-line
As with many other types of insurance, a title insurance policy can feel like a waste of money. But it’s a small price to pay compared to what you can lose if someone challenges your title after your home buying process. Going through the points discussed above would be a good place to start if you’re wondering where to start. They will help you understand the importance of title insurance and give you an insight into how to go through the process of acquiring one.
