What is Title Insurance?
When you are purchasing a foreclosure home or even a non-foreclosed property, it is important to get a title search to make sure the property is free of liens or other publically-known issues. However, what happens if the title search does not uncover all of the potential issues? In these situations, you need title insurance.
Title insurance is designed to help protect the homeowner throughout the duration of ownership from unforeseen issues with the title. When you obtain a title search, there may be some problems with the title that are not uncovered. The last thing you want as a homeowner is for these issues to develop in the future and cost you a significant amount of money and potentially put your investment in jeopardy.
The Two Types of Title Insurance
Now that you know what title insurance is, it is important for you to understand that there are two policy type: Lender’s Title Insurance and Owner’s Title Insurance. The lender option covers their interest (the mortgage amount) while the owner’s policy covers yours (your total investment in the property).
In short, to protect your investment, an Owner’s Title Insurance provides that extra layer of security.
How Much is Title Insurance?
After learning about the two different types, the next question tends to revolve around the title insurance cost. More often than not, the lender policy will cost around $2.50 per $1,000 of the amount of the loan. A homeowner’s policy (which includes the lender policy as well) costs approximately $4.00 per $1,000. Therefore, the cost of title insurance depends on whether you opt only for the lender’s policy or if you choose to have both.
However, it is important to understand that the specific cost will vary depending upon the state. Therefore, you can contact local title insurance companies to learn more about the rates for your area. On the other hand, you can often find an online title insurance calculator with relatively accurate information by doing a quick internet search.
Regardless of where you live, more often than not you save on title insurance when both properties are purchased at the same time. Furthermore, when paying title insurance rates, you simply pay the price at closing and you and your heirs are covered as long as you have the property. Therefore, you have one upfront payment and never have to pay again.
What Does Title Insurance Cover?
You know what title insurance is and how much title insurance costs, now let’s explore what is covered.
Sometimes when you get a title search (which is recommended for all titles, especially foreclosure and short sale properties), problems are uncovered later that were not found during the search process. More often than not these issues are one of the following:
- Undisclosed heirs
- Errors in search procedures (aka the issue should of been found in the search but was not due to mistakes made when examining the public records)
- Other miscellaneous errors or omissions in the deed
Regardless of whether you are purchasing a brand-new home that is being constructed or you are buying a distressed property, title insurance policies provide the extra protection needed to help secure your investment in the home.
Choosing a Title Insurance Company
When looking for a title insurance company, the same rules apply as it does for those searching for a lender. The first step in the process is to obtain as much information as possible and to narrow your list down by shopping around and comparing and contrasting coverage and rates. Make sure you get a company that not only has good rates but also has a solid reputation. One of the best ways to check the title insurance company’s reputation involves searching for reviews online.
Do I Need Extended Title Insurance Coverage?
The type of coverage that you choose is ultimately your decision. Most title companies have a variety of owner’s insurance options and many “add-on” protections for you to consider. For example, some of the extended coverage may include mechanic liens or coverage against structures that encroach upon your land. Examine all of the options closely and decide if any of the extended policies are relevant for your specific situation. At the end of the day, you ultimately have to weigh the pros (protection) and cons (cost) of these extras and make the decision on whether or not the peace of mind exceeds the cost.
In conclusion, title insurance can go a long way in protecting your total investment in the property from matters that may not be uncovered in the title search process. If you are purchasing foreclosures, short sales, or other distressed properties then you should consider this added protection to help protect yourself against potential losses if title issues are discovered in the future.