Title Insurance 101
If you are in the process of buying a home or plan to buy one in the next year, it’s important to understand what title insurance is and what it covers. As a homebuyer, you will be urged to purchase owner’s title insurance, or in most cases, it will simply be added to closing costs along with that costs of lender’s title insurance. What does owner’s title insurance cover and what is the difference between lender’s title insurance and homeowner’s title insurance?
What is Owner’s Title Insurance?
It protects home buyers from defects or problems with a land title in the transfer of property after they purchase a home. Basically, title insurance protects the home buyer if, after you’ve purchased property, someone comes forward to say they have a lien or other rights to the property, alleging that the seller who sold it to you didn’t own it free and clear. It is usually paid by the home buyer or the seller at closing, depending on that state and who has agreed to pay it in the contract.
What Does it Cover?
If a title dispute were to arise after you’ve bought a home or land, the title insurance policy will typically pay to defend you in court if anyone tries to challenge your title. Should you lose the case, title insurance will compensate you for the equity you have in your home.
What is Lender’s Title Insurance?
Most lenders will require that the home buyer purchases lender’s title insurance. This type of policy protects that lender’s interest in a property if title issues should arise after closing. The premium that the buyer pays on this type of policy usually goes down over the life of the mortgage loan as the amount owed to the lender decreases.
What is Done to Minimize Title Disputes?
Typically, you won’t have any disputes arise after you purchase your home. The title company or attorney handling your titles services will search public property records prior to closing to trace the ownership of the property. They will consider things like clerical errors and omissions, undisclosed heirs who might have claims to the property and any liens that may exist on the property. They will do their best to make sure that the seller owns and has the right to sell the property. They also will look for signs of fraud. If they find any issues they will deal with these before closing.