What is Title Insurance and Why Do You Need it?

Estimated reading time: 3 minutes

Deciding to purchase a home is a big decision that takes a lot of time, emotion, and energy. After investing so much, the last thing you want to encounter is unexpected confusion about who truly holds the title, or ownership, over your new property.

What Exactly is a Property Title?

If a person holds a property’s title, it means they have certain legal rights as the owner. These rights include the property’s possession and the right to sell, rent, or transfer ownership. When you become a homeowner, it’s crucial to ensure your new home has a clear title and your legal ownership isn’t called into question.

What is Title Insurance?

Your title insurance is a one-time payment made during closing. It covers certain legal costs that could arise in a title dispute. While the provided coverage will depend on the chosen policy, title insurance may protect you from:

• Forgeries or fraud
• Filing errors
• Tax record errors
• Back taxes
• Undisclosed or missing heirs
• Divorced parties’ rights
• Conflicting wills

There are two different types of property title insurance during the mortgage process.

Lender’s Title Insurance

Most lenders will require their borrowers to purchase title insurance to protect their company assets, with the cost dependent on your mortgage amount. Your lender may suggest or choose a title insurance company for you and include the fee on your loan estimate to help you budget for upcoming closing costs.

Owner’s Title Insurance

While owner’s title insurance is optional, it’s highly recommended to be sure you’re protected from any title issues. Instead of the mortgage amount, the cost is based on the home’s purchase price. According to the American Land Title Association, title insurance policies typically cost about .67% of the purchase price. If you buy a $400,000 home, your title insurance would be $2,680.

Generally, How Does Title Insurance Work?

A title company will search through public records to verify that the home seller holds legitimate ownership of the property and has the right to sell it. If there are any discrepancies or issues to be aware of, they’ll alert you.

After the search is completed, the title company create a quote for a policy based on the evaluated risks. You or your lender are then protected should anything that’s covered in the policy challenge your ownership.

Is Owner’s Title Insurance Worth It?

Let’s say a previous owner of the home has unpaid property taxes, resulting in a lien on the home that can’t be removed until they’re paid off. As the new owner, you would have to make up those costs out of pocket.

While it may not seem necessary, you’re paying a one-time cost for protection that lasts for as long as you own your home. If you don’t hold a policy and an issue arises in the future, you may be held responsible in its correction—which can be costly.

Whether you’d like to pay for owner’s title insurance will depend on your financial situation. To find out if it’s the right choice for you, it’s best to speak to your Real Estate Agent and Loan Originator.

Helping You Make Informed Home Financing Decisions

Although homeownership may look different than renting, you’re not alone during this transition! At McGlone Mortgage, our Loan Originators are dedicated to helping demystify every part of the process, from pre-approval to post-closing. Ready to get started on your homebuying journey? Contact us today!