Title insurance is a type of insurance policy that protects both homebuyers and lenders in case there is anything wrong with a home’s title. This type of insurance covers risks surrounding a home’s title, such as disputes, liens, or back taxes owed. Title insurance can help to make sure that there aren’t any unexpected title-related costs after you purchase a home.
What Does Title Insurance Cover?
There are a variety of different issues that can occur surrounding your home’s title. That’s where title insurance comes in. Title insurance protects both lenders and homeowners from financial risks associated with complications with a home’s title, including:
- Outstanding liens
- Errors and omissions in deeds
- Fraud or forgery
- Outstanding lawsuits
- Conflicting ownership
Even if you’ve thoroughly researched your home’s title and it seems squeaky-clean, mistakes happen. Title insurance can help to make sure that you won’t have to shoulder the burden of additional costs if there are any problems with the title after you purchase a house.
There are two main types of title insurance: owner’s title insurance and lender’s title insurance. While they cover the same type of risks, they insure two different parties: lender’s title insurance only insures the lender, while owner’s title insurance only insures the homeowner.
Lender’s Title Insurance
Lender’s title insurance is typically required, and protects the lender in the event of issues with the title. Purchasing lender’s title insurance involves paying a one-time flat fee, and is usually done when closing on a house after a title search has been completed. With just a lender’s title insurance policy, the homeowner may still be on the hook for any costs associated with a “dirty” title after they purchase the home.
Owner’s Title Insurance
Owner’s title insurance is not always required, but it’s always recommended for new homeowners. This type of insurance provides coverage for homeowners in case anything is wrong with the title of their new home. Whereas lender’s title insurance only protects the lender, owner’s title insurance helps to protect owners from financial complications stemming from title issues surrounding their home.
How Much Does Title Insurance Cost?
The cost of title insurance varies depending on several factors, including where you live, the value of your home, and which company you purchase an insurance policy from. On average, policies tend to cost somewhere between $500 and $3,500. Title insurance is a one-time cost paid when you close on a house, so you won’t have to worry about additional monthly premiums for this type of insurance.
Do You Need Title Insurance?
While it might be tempting to cut costs by forgoing title insurance, it’s usually not a good idea. Lender’s title insurance is required, and owner’s title insurance is recommended even in cases when it’s not required.
The main reason why title insurance is beneficial is because, for a one-time fee, it can protect you against any past issues involving your home’s title. For example, if you find out that back taxes are owed after purchasing a home, you’ll be on the hook for the full cost unless you’re protected by title insurance. Since issues surrounding the title, such as outstanding lawsuits or liens, can quickly become pricey, title insurance can save you a lot of money should there ever be an issue with your home’s title.
Even if you’re relatively certain that your home has a clean title, it’s usually better to be safe than sorry. Compared to the total cost of your home, title insurance is likely a much smaller additional cost, so it makes sense to spend a little extra in order to ensure that your home is protected.
How to Get Title Insurance
Prior to the purchase of a home, lenders will typically employ a title company to conduct a title search for the home. This involves going through public records to ensure that the home has a clean title. Once the title search is complete and as long as no issues with the title were found, then it’s time to purchase title insurance.
Once you close on a home, the purchase of title insurance is typically initiated by a closing agent once the property purchasing agreement has been completed. In many cases, both lender’s title insurance and owner’s title insurance are required. Even if owner’s title insurance isn’t required, however, you should still consider purchasing a policy. Title insurance will go into effect once you pay the one-time title insurance fee.
Unlike other types of insurance, title insurance policies are a type of indemnity policy that provides retroactive coverage. This means that, once you purchase title insurance for your new home, you’ll be protected against any past issues surrounding the title that occurred prior to the purchase of your insurance policy. This coverage stays in effect for as long as you own the home. Title insurance can help to ensure that you’re covered in case any complications arise, so that you can focus on enjoying your new home instead.