You have found your dream home and you are now speaking with you lender about all of the additional requirements and expenses that you are responsible for. Along with inspections and permits, you find out that you need to pay for title insurance. Many people then start to question if it is actually necessary or is it just an additional fee tucked into your piles of paperwork.
It’s important to learn what title insurance actually is, how it works, and how it can protect you and your lender.
When we think of the various types of insurances we purchase throughout our lifetime, these insurances protect us against events that might happen in the future. We have medical insurance to cover physicals and immunizations for our children, and also to help cover the medical bills should be become ill. We have auto insurance to help us if we should get into a car accident. We have life insurance to assist our loves ones after we pass. But title insurance works differently. Title insurance protects us against any discrepancy or fraud that happened in the past with previous owners of the property.
Below are the two types of title insurance.
Lender’s Title Insurance:
When approved for a mortgage, your mortgage lender has a huge investment in your property, your dream home. Upon purchase, the buyer is provided a title for the property from the seller. Since most people need a mortgage in order to purchase a home, the lender holds the title until paid off. As part of the purchasing process, and in order for this to happen, a title company must research the history of the property (perform a title search) to make sure the seller holds a “clean” title, meaning they have complete ownership and the right to sell the property. During this process, they are checking for things such as any liens on the property, discrepancies in the public record, errors in recording previous titles and fraud. When a discrepancy is found, it can usually be taken care of prior to the closing. If the claim against the seller is more complex, the buyer has enough time to back out of the sale.
However there are times when the discrepancy is not found during the title search. Perhaps there was forgery on the original documents 20 years ago and was not found when checking the title history, or an heir comes forward years later claiming to be a beneficiary with legal rights to the property. This is where the title insurance comes into play and why it is so important. Though the above scenarios are not common, it is entirely possible, hence the reason lenders will insist on title insurance. Since they are paying the seller the agreed upon purchase price, the lender insurance is covering them from legal fees and their investment in the home should a problem arise.
Homeowner’s Title Insurance.
So now you might be thinking: I don’t have a choice but to buy Lender’s Title Insurance, but do I actually need Homeowner’s Title Insurance too?
This title insurance is not mandatory, however it is recommended. Remember, this is YOUR investment. You have likely come up with a large sum of money for a down-payment, paid for renovations and updates and you will continue to make payments monthly on your property. Your equity will continue to increase as time goes on, therefore the Homeowner’s Title Insurance is important to protect YOU. The money you pay for this type of protection is certainly worth the cost of this one-time fee. Without it, you could be faced with large legal fees or in the worst case scenario, though not common, the loss of your property