Congratulations! You found a forever home, and the seller accepted your offer. Now, the real work begins.
As a home buyer, you’ll make more than a few critical decisions. You’ll choose your team—the professionals who make your real estate transaction happen—all within a matter of weeks.
Don’t forget real estate title insurance!
If that statement comes as a surprise, you’re not alone. Many first-time homebuyers aren’t familiar with title insurance. It’s necessary, and in some cases, a mandatory piece of the homebuying puzzle.
Why do you need it? Take a minute and read today’s post for answers to your questions about why every home buyer should include title insurance in their closing costs budget.
You Can’t Close without Insurance
Unless you’re purchasing your home with cash, you will need to buy insurance.
Banks and mortgage companies—the two primary funding sources for homebuyers— require their customers to buy two policies. One is homeowner’s insurance. The other is real estate title insurance.
A homeowner’s policy protects you in case of a catastrophic event like a fire or water damage from a broken plumbing pipe. Title insurance protects the lender.
Are you a cash buyer who just breathed a sigh of relief?
Not so fast! All homebuyers need title insurance. Even if you’re not borrowing a dime to buy your home, investing in a title insurance policy is one of the wisest decisions you’ll make.
The Promise of a Clear Title
Everything you do after the seller accepts your offer moves you one step closer to getting the keys to your new home.
Keys promise access to your home. Clear title guarantees ownership. Without it, you have no assurance that your investment comes free of encumbrances.
The seller also wants you to have a clear title. Title issues may risk a delay in closing on the property. Delays mean the seller must wait for their funds from the sale of the home.
Sometimes things happen behind the scenes that cloud a title. Usually, the seller isn’t aware of a problem, but never-the-less, title issues can pose difficulties. In some cases, a clouded title cancels the sale altogether.
Why not prevent title issues today and in the future by purchasing a title insurance policy?
Two Types of Insurance
In Pennsylvania and most other states, homebuyers work with two types of title insurance.
If you apply for a mortgage, your lender will require one type. The other is optional but strongly recommended. Here are a few points about each type of insurance.
Lender’s Policy
If you’re a homebuyer in the state of Pennsylvania and you apply for a federally insured loan such as an FHA loan, your lender will require you to buy a title insurance policy.
Officially known as a mortgagee title insurance policy, it protects the lender from a chain of title problems that surface after closing. The chain of title is a historical record of ownership of the property you’re buying, and it can go back to the original owner.
The lender’s policy protects the lender’s interests. The second type of insurance policy protects the interests of the homebuyer.
Owner’s Policy
When buying a home, several scenarios could affect the homeowner’s right to live in the house. Have you ever heard stories about strangers who show up at someone’s front door claiming they own the home?
It may sound like a TV drama, but it happens in real life. A lost heir shows up and threatens to sue a homeowner. The so-called lost heir believes they had a claim against the home long before the homeowner purchased it.
Even though a title company does their due diligence during the initial title search, sometimes claims against properties don’t show up before the closing day. These elusive claims are called hidden hazards.
An owner’s policy offers legal protection should a lost heir or hidden hazard come up after closing.
Back Taxes and Liens
Even after thorough research, some issues go undetected. Two common title issues that pop up after closing are back taxes and liens.
If the seller falls behind on their property taxes, it can create a cloud on the property’s title. Bringing the back taxes up to date is the only way the buyer will get a clear title.
Liens, especially a mechanic’s lien, also pose problems. The buyer may end up footing the bill for undiscovered liens or claims.
An owner’s title insurance policy can protect a buyer from bearing the burden of both delinquent property taxes and other liens on the property.
Protecting Your Investment
Keep in mind, the policy your lender requires you to buy doesn’t protect you. A lender’s title insurance policy only covers the amount of your loan. The policy protects their investment.
Your home is indeed your most significant investment. You work to save for the downpayment. Then you start building equity, and over time you hope the value of your home appreciates.
During the time you live in it, you make improvements—both major and minor, but they all cost money. Buying a home without protecting your investment doesn’t make sense.
Even though it’s not mandatory, protecting your investment with title insurance is one of the wisest financial decisions you can make.
More Questions about Real Estate Title Insurance?
Even though they serve different purposes, both types of title insurance prevent legal problems and investment losses for homeowners and lenders who help make buying homes possible.
Now that you have a better understanding of the protection needed when you enter into a real estate transaction, you’re ready to take the next step towards getting the keys to your forever home. It’s time to choose your real estate title insurance.
If you’re buying a home and have questions about the title, or you’re ready to set up your owner’s title insurance policy, we’re here to help. We’d love to work as your preferred title company. Contact us today for more information.