While buying a new home, usually home buyers want to cut costs as the cost of homes continues to increase since the last few years. In order to cut to this cost, some of the home buyers are ready to spend some more money as part of their closing costs by buying a Title Insurance. This insurance can protect homebuyers from the financial losses caused by any problem in their ownership.
These days, title insurance has been made mandatory for the homebuyers while purchasing a home. Though it increases their closing costs, still it is beneficial as it can repay them many times, in case of any dispute in the ownership of the property they have purchased arises.
Effect of Title Insurance
An insurance cover that protects the owner of the title of a home from financial losses caused by any error in the title of that property or home is known as Title Insurance. The policy of this insurance basically protects the buyers of a property as well as the mortgage lenders. The insurance company offering Title insurance will be liable to bear legal damages and financial losses caused by the dispute in title that arises at the time of its sale transaction.
The cost of getting title insurance is part of the cost of buying a home like closing costs and other expenses, including taxes, charges, and fees. It protects the legal right of the homebuyers to have the title of the property they have bought so that they can possess it, use it, or sell it whenever they want. After occupying your new home, you can avail of the benefits of this insurance for long.
Though title insurance is different from other insurance products, it is still similar to the auto insurance you purchase. Auto insurance protects you from the possibility of an accident in the future, whereas title insurance protects you from financial losses that could occur due to problems in the title of the property, which were not traced at the time of its sale transaction. These problems can be due to some mistake in the record of the property, a clerical mistake in the documents of the property, or due to the lien of unpaid bills of construction or taxes.
Coverage offered by title insurance
The coverage offered by title insurance for a one-time premium may include:
- The defects in the title of the property that may not give clear ownership to its buyers
- The liens or lawsuits existing on the title of the property
- Frauds linked with the title and imitation of the documents
- Errors in public surveys and records
- Problem due to encroachment in the property
Types of title insurance
One can purchase title insurance for residential as well as commercial property. It protects not only the homebuyers but also the mortgage lenders as the insurance companies offer two types of insurance plans in this regard.
Title insurance for lenders: This insurance is purchased by lenders like financial institutions or banks to protect them against any financial losses arising due to any issue related to the title of that property.
Title coverage for homeowners: This insurance plan is bought by the owner of the property to protect him from any financial losses arising due to the illogical mortgage of the property.
Comparison of Lender’s and Owner’s title policies
Though both types of title insurance policies are normally bought together by the homeowner and the lender, the difference in both of these plans makes this insurance a bit confusing.
If you purchase a property that has a mortgage, then a policy is required to be purchased by the lender as it will cover the interests of the lender by securing the amount of loan given by him against that property. This policy is required for refinanced as well as purchased properties.
In order to protect the investment of the homebuyer on buying a property, he will have to buy an owner’s policy from the insurance company as his interests will not be protected by the policy of the lender. Though it is not legally mandatory, it is still advised that homebuyers should purchase it to protect their money in case of any title dispute.
What to Expect from this insurance
When it comes to purchasing title insurance, the property buyers have to go through a streamlined process. Most of the homebuyers are at liberty to choose the best insurance company while buying any property, whether it is sold by its owners or lenders to buy the title insurance. They can compare the features and benefits provided by several insurance companies to find the best one for them.
When you apply for title insurance, then a process starts in two ways. In one way, your transaction is processed by the lender, and in a second way, a thorough search for the title of the property is started by the insurance company offering title insurance. They will search through the taxation records as well as the previous records of the property. They will also search for any problems that were undiscovered previously so that before closing the deals of your house purchase such issues can be sorted out.
The insurance policies or policy is issued by the insurance company after identifying and resolving the previous issues and completing the search for the title of the property. It will help in completing the process of the sale of that property. The lender’s policy will be retained by the lender of your mortgage, and you can get the owner’s policy at the closing of the deal if you have opted to buy one.
Working of Title Insurance premiums
In order to get legal ownership of a property, the buyer of that property must have its clear Title. Homebuyers and lenders apply for title insurance form an insurance company to protect their financial investments in that real estate. At this time, the insurance company verifies the clarity if the title by ensuring that there are no pending taxes, pending legal actions, fraud to the title of the property, and the undisclosed heirs to that property. After verifying all these things, the insurance company issues an insurance policy regarding the title of that property by signing up a contract with an underwriting company. In case the title of the property you have purchased is challenged, then this insurance cover will pay the financial losses incurred by you.
You will have to pay a premium for purchasing the title insurance policy at the time of closing of the deal, and this amount is included in the list of fees paid at closing. The premium of the buyer’s policy is paid by the seller, whereas the homebuyer is responsible for paying a premium of the lender’s policy. However, rules and regulations in this regard may differ in different states.
The amount of premium for title insurance can also differ from the premiums of other insurance types as it is paid only for one time at the time of closing of sale deal. The premium of this insurance protects the loan amount of the lender until it is refinanced or paid off as well as the owner of the property until it is in possession of the buyers. The amount of premium can vary on the basis of the value of your property as well as on the insurance company you have selected.
Importance of title insurance
Though buying title insurance can increase your cost of buying a property; still, it is very important to purchase one at this time. Though major issues related to the title of the property you are buying may rarely arise still without protecting yourself, all of your investment in it can be at risk if any issue comes up any time later on. The best thing about this insurance policy is that it will protect your investment until you possess that property just by paying its premium for one time only.
The title of the property changes whenever it is sold. The issues related to the title of the property can arise at any time during the process of its transfer. The parties involved in the deal may have to lose their funds if the title of the property has some defect. In this situation, title insurance plays a great role. So it is important to buy this insurance because:
- It provides protection to the money invested in the market of real estate
- It protects from financial losses caused by any defect in the title of a property
- It minimizes the risk involved in the transactions of real estate
- The protection offered by this insurance can speed up the process of selling and purchasing a property
- This insurance also covers the cost of legal damages
How to purchase title insurance?
The process of buying title insurance is initiated on the completion of the purchase of a property by a closing agent or an escrow company. You can find a number of insurance companies in your area that ensures the clarity of the title of the property you have bought.