Title Insurance – Is It Worth the Cost?
Title insurance is one of the fees your lender requests during closing for their own protection. But, as a homebuyer, you may be wondering whether title insurance is worth the cost. You need to know the importance of title insurance and how it can protect you from hidden hazards associated with buying a home. Here’s a brief explanation of how title insurance works, how to know whether you need it and how much you should expect to pay for it.
What Is Title Insurance?Title insurance offers protection against any claim that comes against the ownership of your property. Basically, two types of title insurance policies are available during the closing process. The first is the lender’s policy, and the other is the homebuyer’s policy. Each policy gets paid once — it’s not a recurring payment you have to pay in addition to your monthly mortgage.
What Does Title Insurance Protect You From?Title insurance protects you from hidden hazards and claims that may be made after you’ve completed the home purchase. Ideally, your title company will do a title search for you during closing. This will help you know if the seller has a “clear title” without legal claims. Claims include levies or liens from a financial institution or creditor, such as from the government due to unpaid taxes. Claims could also come from relatives who feel they were cheated when the property was sold by a previous owner. Typically, title research will reveal any title issues and help you avoid them during closing. So, why get title insurance after a title search has shown that the home’s title is “clean?”
Is Title Insurance Worth It?From experience, we know that certain hidden issues occur on title ownership many years after the home purchase. For instance, there could be:
- An oversight during title research
- An unknown heir
- An error in ownership history
- A pending legal judgment or lawsuit
- A fraud committed by a previous title holder
When There’s a Warranty Deed on the Property, Do I Need Title Insurance?Some homebuyers argue that they don’t need to spend money on another policy. They claim the seller has issued them a warranty deed — which does tell you that the seller is offering you a home with a clean title. However, does this protect you against any ownership defects that can occur several years after? At that time, the seller would have transferred their risk to the insurer, and the lender’s title policy will protect them. What will happen to you, though? Without a good title policy, you could lose your stake in the home. This includes:
- Your initial down payment
- The cost and value of any major home improvements
- The equity you may have started building up