When buying a home, title insurance might be the last thing on your mind when you’re going through the mortgage qualification process. But it’s actually one of the most important steps in home buying. Why is this, and why should you care?
Title insurance protects you from defects in title, such as unpaid liens or other claims against the property.
Many home buyers rely on their Realtors or lenders to select a title or settlement company but, legally, the choice is yours. You can select and request your title servicer rather than leave that choice up to others.
There are two types of title insurance policies you will encounter when closing on a home: A Loan Policy and an Owner’s Policy of Title Insurance.
The first thing you need to know about the loan policy is that it protects your lender. If you are taking out a loan to pay for your home, your lender will most likely require you to take out a Loan Policy when the home loan is issued. What the policy does is protect the lender’s investment if there are claims against the property that is security for the loan being extended to you. The loan policy thus protects the lender against the loss of the property (your home), which is the security for the mortgage loan.
Owner’s Policy of Title Insurance
This is the policy that works to protect you from losses caused by claims against your home. Prior to closing on a house, the title company will conduct a title search to provide a history of the property’s ownership and to identify any potential risks associated with the house, such as judgment liens, tax liens, or other defects in the title.
The cost of this policy is based on how much you pay for the house and is a one-time fee at closing, lasting as long as you have an interest in the property. This is also the only insurance policy that will protect you against problems associated with the title. Common problems identified and cured before the title insurance policy is issued are:
- Tax liens
- Judgment liens
- Unreleased mortgages
Unconveyed interests, such as when both spouses did not sign a prior deed
Should a problem arise with the title — if someone else claims they own your property, for example — your title insurance policy will provide you with a legal defense and indemnify you for any loss that occurs. An Owner’s Policy is not always an automatic piece of the closing process, so be sure to request it prior to closing.
Shopping for the Best Options
When you are considering the best options for title insurance, look for a title company that has fast and efficient service; demonstrates that it complies with industry best-practices and regulatory requirements; and has the professional staff available to provide you with complete service.
As you’re wrapping up the mortgage approval process, keep in mind that there is still a very important step to take: choosing a title and settlement services company. The last thing you want is for your dream home to quickly turn into a nightmare and to not have the proper support to handle it.