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What Is Title Insurance and Why Do Homeowners Need It?

Monday, February 1, 2021

Are you purchasing a house? If so, then you may have heard about title insurance. Before you can secure the title for your new home, most lenders require you to get title insurance. 

You may be wondering, "What is title insurance?" It could save you money in the long run and if it's required, then it's probably important.

Is it necessary though? How exactly does it benefit you? 

Read on to learn more.

What Is Title Insurance?

To put it simply, title insurance protects you from any claims or events that occurred before you purchased your home. 

There are two types of title insurance – lenders and owners. With mortgage requirements, the lenders policy is necessary while the owners is optional. 

The lender's policy only protects the lender in the event of any title problems. This helps protect the amount of money that is lent.

The owner's policy, however, protects the current homeowner. Common errors that are covered by this policy are past unpaid debts from previous homeowners, deed mistakes, and forgery. 

Is Title Insurance Necessary?

If your mortgage lender requires a lender's policy, then there isn't a way around it. You will need to buy this policy to secure your mortgage.

But, let's dive deeper into the owner's policy. 

With most purchases, any defects mean taking the item back to the seller. When it comes to houses though, things work differently. The seller removes themselves from any risk by transferring responsibility to the insurance company. 

So the seller is protected and the lender is protected. But what does that mean for you?

Without an owner's policy, any errors or problems that arise with the title must be dealt with by you. Worst case scenario: the equivalent of your down payment and equity could be put on the line.

Title defects could end up being expensive. That's why many consider title insurance to be so important. As the saying goes, "It is better to be safe than sorry."

What Does Title Insurance Cost?

You understand what it is and how it works. Now, you may be wondering how much title insurance costs for lender's and owner's policies. Note that prices depend upon the seller and the state in which you are purchasing. 

Sometimes, the seller will cover the lender's policy. Other times, it can be negotiated for the seller to pay for both policies. 

If you're responsible for the bill, don't fret.

Unlike other forms of insurance, title insurance is paid once rather than with monthly premiums. Nationally, the average price range is between about $1,400 to $2,800 for most average-priced homes. 

Find The Right Policy

So, what is title insurance? Above all, it protects homeowners from any title defects that occurred before owning the home. If problems arise, you won't be responsible for a dime with title insurance.

Now that you understand the basics, the next step is finding the right policy for you. With two inclusive policies to choose from, you're sure to find the one that suits your needs.

If you have any questions or concerns regarding title insurance, contact us. We will be more than happy to assist!

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