Understanding title insurance

title insuranceMagnifying glass

Between dealing with mortgage rates and home loans, it’s easy for other parts of the home buying process to fall through the cracks. After all, who has time to worry about things like title insurance when you’re trying to find the best deal on a home purchase? However, with more lenders now requiring title insurance as part of a mortgage loan, it’s vital that potential home buyers fully understand what title insurance is, how it can protect them and ways to save money in the process.

What is title insurance?
Title insurance is a form of coverage that protects against losses arising from ownership in a property. When you purchase a home, chances are that it’s gone through a number of changes in ownership. This also includes the land the home itself sits on. Since human error or unforeseen problems regarding the transfer of ownership may lead to legal troubles regarding a home’s title, this insurance means that public records have been thoroughly searchedto ensure a property’s title is in order. It also means that if any problems do arise, the owner or lender will be covered.

Types of title insurance
There are two main types of title insurance policies. Homeowner policies provide coverage for homeowners in case of a title issue. These policies last for as long as the homeowner owns the property. Homeowner policies are priced based on the value of the specific property. Meanwhile, lender policies provide coverage for lenders. These policies last as long as a borrower has a mortgage, and are priced based on the size of the mortgage.

Title Searches
Obtaining title insurance means that a title search will be conducted to make sure there are no problems regarding a property’s title. These searches start with the most recent deed and work backward, making sure there are no errors or inconsistencies that may lead to legal troubles down the line. This can include looking through marriage records, tax sales and death certificates to ensure that a title has been transferred properly and in accordance with the law.

Title searches are also used to make sure that any liens or encumbrances on a property are paid off.

Title Insurance Binder
While title searches are being performed, the title insurance company will issue what’s known as a title insurance binder, or commitment. This document will feature a number of requirements and exceptions that must be met or avoided in order for the title company to provide insurance.

In addition to information regarding the property, buyer and lender, the binder may require things like payment of all outstanding taxes and assessments against a property. Exceptions may include liens or easements not found in the public record at the time of the title search.

Essentially, the binder acts as an assurance of coverage while outlining which scenarios would void coverage.

Saving money on title insurance
While the home buyer typically pays for the lender’s coverage, title insurance payment can be negotiated. For instance, if you’re buying a home from someone who is desperate to sell, you may be able to have them pay for the title insurance cost as part of the deal, or, at the very least, split the cost.

Remember that once the title insurance premium is paid, you never have to pay it again. Title insurance features a one-time fee that provides coverage for as long as you own a property. If you buy a new home or refinance your current mortgage, you will most likely be required to purchase a new title insurance policy. However, it may be possible to receive a discount in the case of a refinance. Also, if you decide to switch lenders, it is possible to have your title insurance policy switch with you.

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