What is Title Insurance?
Mortgage Q&A: “What is title insurance?”
When you apply for a mortgage, keep in mind you’ll need to pay a number of closing costs, including title insurance.
Title insurance is required by banks and lenders (lender’s title insurance) to protect against any lawsuits, claims and/or losses arising from the chain of title tied to the subject property.
This includes things like unpaid real estate taxes, liens, easements, fraud, court actions and other encumbrances, put in place by the government, contractors, previous lenders, and creditors. It’s based on the loan amount, which is the lender’s investment.
Owner’s title insurance may also be purchased, and could be paid by the property seller (mandatory in some states) or split by both parties to protect you, the homeowner, against any title issues that may come up. The policy cost will vary from state to state, and is based on the sales price of the property, aka your investment.
If you purchase both a lender’s and owner’s title insurance policy at the same time, you may be eligible for a discount.
As opposed to traditional insurance, title insurance is retroactive, meaning it covers issues leading up to when you purchased the property, not after. The good news, I suppose, is that it’s a one-time payment made at closing, instead of an ongoing cost.
A lender’s title insurance policy lasts until the loan is repaid or refinanced; you must purchase a new title insurance policy if you refinance, regardless of whether you take out the new loan with the original lender.
However, the refinance rate should be cheaper than the basic rate tied to a purchase, so take caution, as there have been numerous complaints concerning title insurance providers charging as if it’s a brand new policy.
An owner’s title insurance policy is indefinite so long as you or your heirs have interest in the property.
You can comparison shop for title insurance in most states, though the price is set in states like Florida, New Mexico and Texas, and pretty uniform (thanks to rating bureaus) in DE, NJ, NY, OH, and PA.
Like anything else, costs can always be negotiated, and not all title-related costs are set in stone, so be sure to shop a bit.
