When you are closing on a new home, you might be surprised by the various fees and expenses that must be paid on top of the price of the house itself. Title insurance may be one of these fees, and you may be wondering who is responsible for this insurance and why it is so important.
What Is Title Insurance?
Title insurance offers protection to homebuyers and lenders against the many potential title issues that could arise related to the property’s past ownership.
For example, the property could have a lien on it related to unpaid taxes, a mortgage or contractors’ fees. If the seller fails to pay these creditors at the time of the closing, you, as the buyer, could end up being responsible for any remaining liens. There may also be easements or local restrictions that were not made clear at the time of purchase.
In some cases, it could emerge later that a party besides the seller has a legal claim to the property, perhaps due to matters related to divorce or inheritance.
In all these cases, insurance can offer protection. There are two main types of title insurance: lender’s title insurance and owner’s title insurance. Lender’s insurance, which is typically required as part of the mortgage deal, will protect the lender’s investment in any of the aforementioned scenarios, but it does not offer protection to you as a homebuyer. Owner’s title insurance, in contrast, protects your investment, such as the equity in your home, as well as any challenges to your ownership rights.
Who Pays For Title Insurance?
The parties responsible for paying title insurance can vary from state to state and even among counties within a state. The buyer is typically responsible for lender’s title insurance as they are the person taking out the loan. The cost of owner’s title insurance may be up for negotiation and can be used to make a deal more attractive.
In Virginia, the home buyer generally pays for both the lender’s and owner’s title insurance, although it may be possible in some cases to include a credit for it from the seller in your contract.
Who Selects The Title Company?
Your realtor or mortgage lender might refer you to a title insurance company they work with, but you are not obligated to use this company. As the person who is paying for the insurance, it is in your best interest to shop around for a good quote and seek a comprehensive policy from a reputable title insurance company.
Once you choose a title company, they will provide a title commitment and carry out a search on the title, which will be provided to you as the buyer before closing. Should any title issues be unresolvable or an easement is discovered that you find unacceptable, you may back out of the purchase.
Once the title has been cleared, the escrow agent for your insurance company will prepare and review your closing paperwork. After closing, the title insurance policies will become active.
Is The Price Of Title Insurance Regulated?
Regulations regarding the price of title insurance depend on the state, but the cost of title insurance is typically a percentage of the home’s price. It may be possible to save money by purchasing both the lender’s and owner’s policy from the same title insurance company.
How Much Should The Policy Cover?
The amount of coverage a title insurance policy offers can vary, which is why many buyers prefer to be in charge of this rather than leaving it up to the seller to ensure thorough coverage. A good policy will protect against issues such as conflicting wills, fraud, filing errors, back taxes, spousal claims, undocumented easements, title forgeries, unknown heirs who later claim ownership of the property, and liens from unpaid bills.
Cost Of Title Insurance
The cost of title insurance comes in the form of a one-time premium that is paid at closing and will provide coverage for as long as the home is owned by the buyer or their heirs. However, if you decide to refinance your mortgage later, you might need to buy a new policy.
The price of owner’s title insurance is modest and can save significant money in the future if a dispute arises. Although buying a foreclosure home may seem riskier, it is still a good idea to opt for owner’s title insurance on new construction as the land on which the home is built could be subject to liens or the builder may not have paid a subcontractor. In short, every type of home purchase can benefit from this type of protection.
Contact Title Insurance Experts
Choosing a local title company can provide some unique benefits, such as friendly and personalized service, trustworthiness and expertise in the local area and its laws. If you would like to find out more about the insurance process or receive a quote, get in touch with the title insurance experts at Mathis Title Company.