Title insurance and closing costs are key components of any real estate transaction. Although many homeowners have likely heard these terms, not all may know who is responsible for paying these costs. Here is a close look at this subject.
What Is Title Insurance?
Title insurance is a type of indemnity insurance intended to protect both homebuyers and lenders against economic losses linked to a defective title. A title is a document that serves as proof of legal ownership of a property and can have “defects” or issues such as unpaid taxes, liens, easements, encumbrances, judgements, undisclosed heirs, and public record errors. There are two types of title insurance policies: an owner’s policy and a lender’s policy. Many title companies offer a basic and an extended owner’s policy.
Unlike other types of insurance policies, title insurance is paid once at closing rather than on a monthly, semi-annual, or annual basis. It’s important to buy title insurance immediately after closing because without this form of protection, issues and lawsuits tied to your property can be extremely expensive to resolve.
Title insurance does not offer protection against incidents such as floods, fires, weather-related events, theft, or vandalism. To shield yourself against claims and damages related to these incidents, you will need to purchase a homeowner’s insurance policy (and potentially an optional add-on).
Closing costs are fees tied to a home’s purchase and, as their name indicates, are paid once the buyer has closed on the property and received the title from the seller. Title insurance is just one type of closing cost; other examples include private mortgage insurance (PMI), loan origination fees, and attorney fees.
Who Pays Lenders Title Insurance?
In many cases, the buyer of a home pays for the lender’s title insurance policy, and vice-versa. However, this may vary depending on the location. In some states, either the buyer or the seller may be responsible for all title insurance payments. For example, in Virginia, the buyer pays for title insurance, while in Nebraska and South Dakota, this payment is divided equally between the buyer and seller.
In certain cases, who pays for closing costs may be negotiable. The same is true for the amount of these fees, which also can vary depending on the type of mortgage and the type of property purchased. Sometimes, a buyer can request that the seller pay a fixed percentage of all closing costs (e.g. 3%).
Government agencies can also help first-time homeowners pay for closing costs. However, only homebuyers in certain locations are eligible for this type of assistance, so be sure to research whether your area offers this program.
As in any other type of transaction that involves a transfer of ownership, it’s important to check your contract (purchase agreement), as this document (along with government regulations, if applicable) generally states who is responsible for which closing costs.
Additionally, you should remember that a lender’s policy only covers the lender up to the amount of the loan. Therefore, it’s always essential to choose a mortgage loan carefully after extensively evaluating your needs and risks.
In addition to the lender’s title insurance policy, homebuyers are often responsible for paying:
- Half of escrow fees
- Half of homeowners’ association (HOA) transfer fees
- Interest on the new mortgage loan
- Home warranty premium
- Notary fees, if they apply
- Hazard insurance premium for first year
- Beneficiary statement fee for assuming the current loan
- Survey and inspection fees
Some lenders also require homebuyers to have cash reserves as a way to prove that a buyer can complete the first couple mortgage payments, so be sure to ask your lender about this.
Speak To The Title Insurance Experts
Reach out to the professionals at Mathis Title Company for more information on who is responsible for paying lenders title insurance and closing costs. We are dedicated to providing title insurance, legal advice, and other real estate settlement products and services to homebuyers, sellers, and lenders throughout Northern Virginia.
When a transfer of ownership is occurring, Mathis will always hold the funds being transferred in an escrow account. We will then perform a detailed title search to ensure the title to a home is clean (clear of defects).
After allowing the new homeowner to review and approve the contract, we can work with one of our reliable underwriting companies to create a title insurance policy. A lender’s policy will cover lenders against issues such as mechanics liens and unrecorded easements. In Virginia, it’s highly recommended that homeowners purchase both an owner’s policy and a lender’s policy.
Call Mathis Title Company today or visit us online to learn more about our title insurance policies.