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What is Title Insurance and How Does It Work?

Monday, December 13, 2021

Buying a house requires a fair amount of knowledge and money. It might feel like the long list of things to learn and then pay for is overwhelmingly long. 

It can be a surprise when you learn part of your closing costs includes title insurance that isn't really coverage for you at all. 

So, what is lender's title insurance? What does a title insurance policy cover?

Read on to learn more about title insurance, including what and who the coverage is for. 

What Is Title Insurance?

Title insurance is a type of indemnity insurance that covers the title of a home. When someone buys a house from another person the title needs to be transferred from the old owner to the new one. Almost always there's a mortgage company involved too. 

The title insurance covers any unexpected surprises that may arise on the title after the transfer has already occurred. The title company is responsible for doing a search to get all the information possible on the title and to make certain it's clear to be transferred to the new owner. 

The title insurance protects against surprises that may be missed in the title search. 

Types of Title Insurance

There are really two types of title insurance. Both types do the same thing. The difference in the title insurance types is who's covered with the policy. 

The most common title insurance is lender's title insurance which is required when you have a mortgage. The lender's title insurance which you pay for as the homebuyer actually protects the lender. 

The lender will require you to pay for the lender's title insurance. It protects their interest in the purchase should any surprises arise with the title. 

The other type of title insurance is the owner's title insurance. As the name implies, this policy protects the owner's interest in the home purchase. This is typically optional, but also very wise since you can't anticipate what kind of surprises might arise with the title. down the road. 

Title Insurance Cost

Unlike other types of insurance where you pay for them over and over, with title insurance you pay just once at the closing of your house. 

As the homebuyer, you pay for both lender's title insurance and the owner's title insurance if you opt to get it. Typically, the policy is a percentage of the cost of the home and varies by region and state. 

What Does Title Insurance Cover?

Even with the most meticulous and careful search done on a title, surprises do come up.  So, you might be wondering what exactly gets covered with title insurance? Most title insurance policies will cover:

  • Fraud and forgeries
  • Heirs who were undisclosed or missing at the time of the search
  • Mistakes made when recording the documents
  • Unpaid assessments
  • Unpaid taxes
  • Unpaid liens or judgments
  • Mortgages not previously released

It also covers a number of scenarios where there is potential fraud through impersonation or mental incompetence. 

Title Insurance Is Part of Buying a Home

If you're buying a home with a mortgage, title insurance is one required part of the process. The truth is that it helps to protect you and your lender from unknown information. 

If you're in the process of buying a home, let us help. Contact us today to learn more about title insurance and make sure your interests get protected. 

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