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What is Title Insurance?Title insurance pays the policyholder for any errors in a property title. Deed records are not always 100% accurate. So someone with an older title can press a claim on your newly purchased home. Title insurance will pay to protect your title rights. It also serves as compensation if you end up losing the property.
Types of Title InsuranceThere are two types of title insurance: lender’s and owner’s. If you get a mortgage, lenders require you to pay for lender’s title insurance as part of closing costs.
Lender’s Title InsuranceLender’s title insurance protects the mortgage lender. While it’s for the mortgage lender’s benefit, the buyer must pay for it. Lender’s title insurance policies ensure that the lender has the first lien on the house if it’s foreclosed or has unpaid property taxes. When these situations occur, the lender will want to be the first in line to receive the proceeds. The one instance you wouldn’t have to pay for a lender’s title insurance is if you pay for a home with cash. If you don’t borrow any money to buy the house, you don’t need to buy lender’s insurance. If you’re paying for a home with cash, lender’s title insurance is not mandatory, but it’s still in your best interest to get coverage.
Owner’s Title InsuranceOwner’s title insurance is optional and can be paid for by the buyer or the property seller. Title insurance coverage will take effect as soon as you buy the policy and last indefinitely. The good thing about title insurance is that it will cover known and unknown mistakes in the ownership history documents. Unlike lender’s title insurance, owner’s insurance solely protects the property owner. Let’s say, for example, there is suspected forgery with the title. In that case or any related legal matters, the fees would be covered by the owner’s title insurance. Or, let’s say the previous owner of the house left the property with unpaid fees. In that case, your owner’s insurance would cover the costs.
Why Do You Need Title Insurance?If you purchase a house with a mortgage, you’ll be obligated to buy a lender’s title insurance. But it’s also a good idea to protect yourself with title coverage. Numerous legal situations can arise where title coverage will be helpful. It will come in handy and compensate you for damages when unexpected events come up. Here are a few instances when title insurance can protect you:
- If you purchase a house that previously had unreported liens or easements on the property
- If you are buying a property that has previously transferred ownership rights through forgery
- Accidental errors in record-keeping and documentation
- Any other title defect that came before you purchased the title insurance policy
How Much Does Title Insurance Cost?The cost of Mandatory lenders title insurance will vary depending on what state you’re in. It usually costs between $500 to $1500 but can be more if you borrow more. Location will be the most significant determinant of cost. Every state has different standards regarding title insurance. Homeowner’s title insurance is optional and generally costs more. Depending on what type of coverage you buy, it can cost anywhere from $700 to $2000. It could even cost more for people who have:
- Lower credit scores
- Larger loan amounts
- Smaller down payments