When you buy a home, one of the essential items you are expected to purchase is title insurance. The title insurance is issued by a title company, whose job it is to verify the line of ownership for the property. This is done to prevent you from buying a property from someone who doesn’t have proper ownership of the property, and to provide you insurance if in fact you make that mistake and the rightful owner claims the property.
What Does a Title Company Do?
Before you close on the home, the title company runs a search of any records related to your chosen property. The search is designed to identify unpaid debts, as well as back taxes. Lenders like to have title searches performed for properties in order to ensure that the payment of these obligations won’t put you at greater risk for default.
Once the title search is completed, if the title is shown to be clean, the title company than issues the title insurance. Title insurance is a policy designed to help protect you in the event that a property’s former owner decides to dispute your ownership. On top of that, if there are claims of back taxes against the property, title insurance can protect you.
The title insurance policy will pay out against these claims, and you won’t have to worry about these claims straining your budget down the road.
Do You Have to Pay for Title Insurance?
Most lenders prefer it if you have title insurance. Normally, that means the borrower pays for the title insurance. Your lender might have a preferred title company that it works with. There are major players in the title insurance industry, such as Fidelity, First America, Land Title Insurance, Old Republic, and Chicago Title Insurance, can provide title insurance.
Additionally, it is also possible for you to choose a title insurance company on your own. The Real Estate Settlement Procedures Act (RESPA) entitles homeowners to choose their own title company when purchasing or refinancing a residential property. While a lender might require you to obtain title insurance, and may even recommend a company for you to work with, the lender can’t force you to choose a particular company.
Some of the costs you will pay for title insurance include premium charges, as well as other underwriting costs. Depending on the state you live in, premiums often range between $1,000 and $4,000. Often, there is a formula, based on the cost of the home. One of the common formulas is one in which the purchase price of the home is multiplied by 0.005. In this case, a home bought for $200,000 would have a title insurance premium cost of $1,000. You may also have to pay additional costs, such as underwriting expenses and other service fees.
Title insurance costs are usually one-time expenses that you pay as part of your loan closing. You can choose to pay this cost out of pocket, or have it added to your mortgage. Ask your lender about the costs (if you choose to simply have your lender arrange everything), or find out what the total cost will be from the title company (if you choose to arrange title insurance independent of your lender).
If you are unsure about title insurance, and the process, contact a knowledgeable real estate attorney to help you work through the details.