If you’ve ever purchased a home, you probably noticed that a significant portion of your closing costs went to something called title insurance. You might find yourself wondering, what is title insurance? Is it necessary? Can you shop around and save some money?
What Is Title Insurance?
Title insurance protects you from financial loss due to defects in your home’s title. Certifying that a title is free of defects is a laborious manual process that often involves looking through many years of paper records. Human error is always a possibility.
What are some title defects that can cause you problems?
- Someone could claim that they inherited the property but were not consulted in a subsequent sale
- A contractor could claim that they did extensive work on the house and were not paid
- Previous owners could have failed to pay their property taxes, leaving you saddled with the obligation to catch up on payments
A title insurance company will essentially pay money to make these problems go away, should one arise.
Is Title Insurance Necessary?
Virtually all lenders will require you to purchase lender’s title insurance, which protects them in the event there’s an issue with your property’s title. They don’t want to lose their investment on your home either. They probably won’t require that you purchase owner’s insurance, but this is still a good idea. This protects you from risk, as opposed to the lender.
An issue can arise with your title any time after you purchase the property. Imagine that it’s been several years and someone comes along and claims that they are the legal owner of your house. Any equity you’ve accumulated is at risk. Any improvements you’ve made to your home could become major financial losses. Title insurance can certainly be expensive—anywhere from a few hundred to a few thousand dollars. But if you’re unlucky enough to have a title issue, the price will seem like a bargain.
Can You Pay Less?
If the cost of title insurance stretches your budget to the breaking point, there are a few ways to save. If the housing market in your area isn’t too hot, you might be able to negotiate with the sellers to cover title insurance.
You might also be able to get a bulk discount if you buy title insurance for both the lender and the owner from the same company at the same time.
You can shop around and compare rates, but in some states the rates are legally regulated so there isn’t much difference between one company and another. Either way, you receive the same basic product.
Get expert advice
It can be tempting to cut costs when you’re buying a house. But title insurance is one area in which the money spent is well worth it. It can spare you expensive legal issues or even losing your home. For guidance on how to manage the home-buying process, contact us to connect with an experienced financial advisor.