Purchasing a home is a big and exciting commitment that can lead to many wonderful new memories for you and your family. As you go through the process, you will sign several different documents. It is important to read through the numerous documents that you will be signing carefully, including a closing statement (or “CD”), promissory note, mortgage instruments, deeds and various other documents. One of the documents that will be mentioned is title insurance, which is issued after closing. There are two types of title insurance: owner’s title insurance and lender’s title insurance. Here is what you need to know about both before you close on your home.
Owner’s title insurance helps protect you from liens or defects in the title of the property. If a previous owner decides to challenge your ownership of the property, you will be protected. Owner’s title insurance is addressed in the terms of your contract to purchase your home and is typically paid for by the seller. It is not a requirement for you to close on the home, but it is highly recommended to have owner’s title insurance.
“A title agency determines the existence of any title issues and sees that they are addressed before a transaction closes. For instance, the seller’s mortgage, unpaid taxes, unknown heirs or survey matters. Unknown issues can come to light later, so a policy is necessary in order to defend you in those cases. Most claims are associated with survey issues and tax matters,” says Janette Coon, president of Prosperus Title & Escrow LLC.
Lender’s title insurance protects the lender from any claims made against the property. Lenders will usually require that the title insurance covers the full amount of the loan. The borrower is typically required to cover the costs of the lender’s title insurance. If the home were being foreclosed, this type of insurance would defend the lender’s lien position. Lender’s title insurance is usually included in the disclosed costs and fees prior to closing on your home.
Title insurance is an upfront cost when purchasing a home. The cost will vary by state and is usually set by the price of your home. Title insurance is a large cost, but unlike other insurance, it is a one-time premium. If you do decide to buy owner’s title insurance, the title agency will research previous owners, including divorced spouses, heirs of the property, unpaid taxes, encroachments, easement and restriction documents, any pending legal cases, fraud, or other matters that may affect your title.
When choosing title insurance, you have the option of choosing your own title agency. This decision is made as part of your contract to purchase your home. If you don’t know where to start, ask your realtor, attorney or lender for title companies that they may recommend. Obtaining title insurance will give you peace of mind in knowing that your property and home are covered.