When you come to the table to close on your home, you and your mortgage lender are eager to pick up one piece of paper: title insurance.
Finishing the title check and then buying title insurance helps you leave the closing knowing you are completely protected against any prior ownership issues that could arise after you take the keys to your new home. Title insurance from Patten Title Company helps you ensure that you won’t toss and turn at night because you know that you are the legitimate owner of the house, even if a title issue pops up.
When you spend the money for title insurance, it helps to understand what you’re buying and why a title check is an essential part of the home buying process.
WHAT IS TITLE INSURANCE AND WHY DO YOU NEED IT?
When you’ve found a home that you are eager to buy, your lender will ask for a home title search and that a title insurance policy be written.
A title company will search to reveal any previous ownership issues that might be attached to your new house. The insurance guarantees that all information given to you is current and legal.
Title insurance covers any unforeseen problems with home ownership that could date back years before the seller put the home on the market. These include:
- Liens on the property
- Possession claims
- Will disputes
- Boundary or zoning disputes
- Forgery or fraud
Title problems are not uncommon, as more than a third of the title searches reveal an issue with the title, the American Land Title Association says. If there is a problem with the title, the buyer will want to resolve it before closing.
A closing attorney can help fix minor disputes or errors so that you have a clean title at closing. However, in some cases, title issues can delay the closing.
Problems can arise even after thoroughly checking the property’s ownership history. An unresolved old lien will inhibit the owner from selling the house. Other issues include unpaid property taxes, a title forged or improperly signed, or someone else claiming ownership of the property.
In Texas and most states, owner’s title insurance is not required, but lenders often require a buyer to purchase title insurance before approving the loan. Lender’s title insurance covers the cost a lender could incur if an issue with the title affects the loan.
There are two types of Title Insurance:
Protects the lender for the amount of the loan. If you only have a Loan Policy, you are not protected if a problem materializes with your title.
Protects you and your property — your equity. Additionally, it provides assurance that your title company will stand behind you if a covered title problem arises after you buy a home. Unlike most insurance policies, title insurance is a one-time-only fee. This policy will protect you as long as you and your heirs have an interest in the property.
HOW MUCH DOES TITLE INSURANCE COST?
The cost of an owner’s title insurance varies by the size of the house and how it’s regulated in certain states. In Texas, title insurance costs are uniform. The premium for a $50,000 house is $496, and for a $100,000 house, it’s $832.
The owner and lender’s title insurance is a one-time fee paid at closing. The total cost runs between .5% and 1% of the cost of the house. For instance, for a home that costs $300,000, the fee for both types of insurance is between $1,500 and $3,000.
The fee covers the insurance for as long the new buyer owns the home, including after the loan is paid off.
HOW DOES TITLE INSURANCE WORK?
The largest protection that title insurance provides a buyer is from a seller who intentionally misrepresents their ownership of the house.
Suppose your new home was sold to you and the title search missed a hidden claim for unpaid property taxes that is thousands of dollars in arrears. The insurance pays for that claim. Without title insurance, you would be obligated to pay the claim from the property taxes, and you could be on the hook for the mortgage.
It is important to note that title insurance is just one type of insurance that you need when you purchase a home. Title insurance doesn’t cover your property from damage. Fires, storm damage, or theft are covered by homeowners insurance. Title insurance is a safeguard against any claim made against the ownership of your house.
SHOPPING FOR TITLE INSURANCE
In many states, like Texas, title insurance costs are regulated. Homebuyers should still do their homework to find a reputable company, like Patten Title, to work with. Understand what comes with your title search and title insurance.
Patten Title is based in Texas and is a full-service title company serving all sides of the real estate market. With branches throughout Central Texas and Houston, we offer title and escrow services to home buyers and real estate professionals across all parts of the state.