When you purchase a house, you obtain the title, which is a document that states you legally own the home. However, if there are unforeseen issues with the title, it’s possible that you could get sued by someone who claims they are the rightful owner. If you own a house, you should consider getting owner’s title insurance to protect you.
What Is Owner's Title Insurance?
Owner’s title insurance is an insurance policy that covers you in lawsuits related to the legal ownership of your home and the title. Specifically, it can help pay for your attorney fees, court costs, and a settlement with the other party. It also protects your equity and allows you to keep living in your house during and after a claim.
There are a few ways that title claims can occur, and it usually has to do with mistakes or fraudulent activity from the previous owner. For example, if the previous homeowner failed to pay their mortgage, it’s possible that their lender could claim that they are still the legal owners of the home.
It is also possible that someone else has the legal rights to your property, like an heir or utility company that was not disclosed during the buying process. There could even be false information on the title, like a smaller square footage or incorrect flood zone information, that could lead to issues with the deed.
Regardless of how long you’ve owned your home, title claims are always a possibility. Typically, these lawsuits come out of the blue and are unforeseen. Having title insurance can help you pay for those unexpected legal costs if you find yourself in this situation. It will also cover unpaid property taxes and outstanding loan balances from the previous owner.
Differences Between Lender's And Owner's Title Insurance?
The main difference between owner’s title insurance and lender’s title insurance is who gets the coverage.
Lender’s title insurance is usually required if you take out a mortgage. Ultimately, it protects the lender’s money if there is an issue with your title. The lending company is covered up to the amount of money you borrowed, and it offers no protection for the homeowner.
On the other hand, owner’s title insurance will only cover the homeowner. Your lender has no coverage with owner’s title insurance, which is why most borrowers must purchase lender’s title insurance when they take out a home loan.
Is Owner's Title Insurance Required?
Owner’s title insurance is not legally required. However, it’s a good idea to consider purchasing a policy. Without owner’s title insurance, you would be on the hook financially for any title claims and associated legal costs down the line.
When you take out a mortgage, your lender can probably recommend a reputable title insurance company, as it’s not sold by major insurance providers. You can choose any title insurance provider you want, and you can choose to drop the coverage at any time.
Who Pays For Owner's Title Insurance?
Even though you own your home, you might not be required to pay for owner’s title insurance. It depends on where you live.
In some states, the homeowner is responsible for paying for owner’s title insurance. In other states, the seller is the one who pays for it. In a smaller number of states, the cost of insurance is divided evenly between the buyer and seller, or the split percentage is negotiated.
If you are buying a house and you want owner’s title insurance, your real estate agent can explain the laws in your state. If you do have to pay for owner’s title insurance, it’s usually a one-time, upfront cost, rather than a monthly premium.
How Much Does Owner’s Title Insurance Cost?
According to Realtor.com, the average cost of title insurance is $1,000. But the cost of owner’s title insurance depends on the value of your home and where you live. In most cases, the cost of coverage is a percentage of the home’s purchase price. Unlike home or auto insurance, it doesn’t account for factors like your credit score or claim history.
With that in mind, owner’s title insurance for high-value homes will be more expensive than insurance on a home that has a lower purchase price. But remember that depending on where you live, the seller might be responsible for the full cost of coverage, in which case you would pay nothing out-of-pocket.
Is Owner's Title Insurance Worth It
For most homeowners who plan to live in their house long-term, owner’s title insurance is worth it. This type of insurance can offer valuable protection in the event of an unexpected and costly lawsuit. Plus, you won’t lose your equity if issues arise with the title.
Another thing to consider is that, without owner’s title insurance, you could be forced to vacate your home if there is a problem with the title. Having insurance ensures that you can stay in your house when the lawsuit plays out.
However, there are a few situations where owner’s title insurance may not be necessary. For example, if you are purchasing an investment property to flip, or are planning to live in the home for a short amount of time, this type of insurance may not be as important.