What is Title Insurance?
Title insurance is a financial product that protects homeowners and lenders from losses related to the ownership of a property. It’s typically purchased when buying a home or refinancing a mortgage. The insurance covers issues such as hidden liens against the property or disputes over ownership.
How Title Insurance Works
Imagine buying a home only to discover later that there’s a hidden lien against it due to unpaid debts by the previous owner. Title insurance pays out in such rare instances when a legal claim is made, protecting both the homeowner and lender from losses.
Types of Title Insurance Policies
There are two main types of title insurance policies:
- Lender’s Title Insurance: This policy covers the mortgage lender and is usually required when buying a home or refinancing a mortgage. The coverage decreases as the mortgage is paid off.
- Owner’s Title Insurance: This optional policy covers the homeowner for as long as they own the property. It protects against disputes over the title and hidden liens.
Should You Buy Title Insurance?
While lender’s title insurance is typically required, owner’s title insurance is optional but recommended for peace of mind. It provides protection against potential title problems that could arise in the future.
Title Insurance Cost
The cost of title insurance is a one-time fee paid at closing, ranging from 0.5% to 1% of the home’s purchase price. For example, on a $350,000 house, it could cost between $1,750 and $3,500. Some states set title insurance rates, while in others, you can shop around for the best deal.
Tips for Navigating Title Insurance
- Understand that lender’s title insurance is usually required when buying or refinancing a home.
- Consider purchasing owner’s title insurance for added protection.
- If you’ve already bought an owner’s policy, you don’t need to purchase another when refinancing your mortgage.
- Shop around for title insurance if you’re not in a state with regulated rates.
By understanding title insurance and its benefits, homeowners can make informed decisions when purchasing or refinancing a home.
