A few weeks ago, I got asked by one of my clients, “What is this charge on my closing costs for the title insurance?” This is a question we receive frequently as there are often 2 charges for title insurance- one for Owner’s Coverage (optional) and one for Lender’s Coverage (required if you are getting a loan).
What is it?
Title insurance is a protection for the new owner and the lender to ensure ‘clean’ title as this is what gives you, as the purchaser, unencumbered ownership of a property. A title search is done before a purchase to make sure there are no preexisting liens or other restrictions that would hinder ownership on the property. A few examples of items that could come up as issues are improper title transers, an old mortgage that was paid off years ago but not recorded properly, or simply an error in the description of the land. Title insurance kicks in to help resolve outstanding issues like these.
Types of policies:
There are 2 different types of policies: an Owner’s policy and a Lender’s policy.
What is covered will depend on the policy you choose. An Owner’s title insurance policy provides you with protection against anyone who tries to sue you for a claim in the property. An example of this could be a long lost relative, or unknown heir, from a previous owner. Another example could be a contractor who claims they were not paid for work that may have been done on the home before you took ownership.
If you purchase a Lender’s policy it only protects the lenders interests in the property. If you end up losing your home to an unknown lien or title issue, your mortgage will be paid off, however, you will not get anything to cover the payments you have already made on the mortgage and you could lose any equity you have in the home. You are usually required to purchase a Lender’s title insurance policy to get a mortgage. It is always a good idea to also purchase your own Owner’s title insurance policy to protect your interests even if your title search at the time of purchase comes up “clean.” You never know if unknown issues could surface later.
Title insurance is not a policy you have to pay every year. There is a one-time premium for your policy usually paid at closing. Your Lender’s policy ends when the mortgage is paid in full and your Owner’s policy ends when you no longer own the property. In the long term, title Insurance is not very costly; it is a one-time premium which is usually rolled into your closing costs.
Prices vary from state to state, but can run you about $1,000 to $4,000. This is a small price to pay for peace of mind!