So, you’re about to purchase your dream home and you keep hearing your real estate agent talk about title insurance.
But what exactly is title insurance anyway?
And do you REALLY need it?
What is Title INsurance?
When you purchase a home, you take “title”, which simply means that you are taking legal ownership of the home.
Title insurance is an insurance policy that protects you and your mortgage lender from someone else trying to claim ownership of your new home. It essentially protects you from any and all financial loss or title issues due to liens, disputes between prior owners over wills, clerical problems in courthouse documents, or fraudulent claims against the property or forged signatures.
Your settlement company will do a title search to see if there are any issues with your title that could give you any headaches down the line. Title searches are usually required by the lender.
The title company then insures your claim to the property’s title. If they miss anything during the search or there are lawsuits questioning your legal ownership of the home after closing, your title insurance policy will cover the costs of resolving the problem.
Owner’s Title Insurance vs. Lender’s Title Insurance
There are two types of title insurance: lender’s and owner’s.
Almost every lender will require you to pay for a lender’s title insurance policy. This protects the lender from incurring any costs if any type of title dispute comes up after closing. It does NOT protect you from anything.
Owner’s title insurance is usually optional, but it’s highly recommended. Without it, you will be stuck with the bill for any costs that arise from resolving a title claim, which could be thousands or even hundreds of thousands of dollars. Even though it can feel like you’re spending a ton of cash when you purchase a house, a title insurance policy is one of those things that can save you money in the long run and give you a lot of peace of mind.
How much does title insurance cost?
The cost of title insurance is typically around $1,000 for a policy, but that amount varies greatly from state to state and also depends on the price of your home.
In some states, title insurance premiums are fixed by the government, so you will pay exactly the same amount no matter what. Other states have unfixed premiums, so buyers can shop around.
Unlike other types of insurance, you only have to pay the title insurance premium once at closing.
Try this title insurance calculator to help you figure out the cost for your area and purchase price.
How to save on title insurance
In states with unfixed insurance rates, you can save money by shopping around. Even in states with highly regulated title insurance industries, there can be ways to save. Here are some ways to decrease your title insurance costs.
- Shop around. If premiums are unfixed in your state, shop around to find the company that offers the best rates. Just make sure you look at the reasons a company might be very cheap. Resolving a title issue can be stressful and you want a company that has excellent customer service to help you through the process. Read reviews and talk to your real estate agent for recommendations.
- Bundle. Some companies will offer a discount if you bundle your lender’s and owner’s title insurance policies.
- Negotiate add-ons. Even if the premium itself is fixed, there are usually other fees built into your total price. See if there is any wiggle room there. They may be optional or the insurance company might be open to discounting them. It never hurts to ask!
- Negotiate with the seller. You can always negotiate closing costs and paying for the title insurance might be worth it to a seller who’s highly motivated to sell. However, this may backfire in a highly competitive market.
So, do you really need title insurance? The answer is yes, you usually are required to purchase lender’s title insurance to protect the lender. The answer is also no, you are not required to purchase owner’s title insurance, but we highly recommend it. It will give you peace of mind and save you a ton of headaches (and MONEY) if there are any issues with the title search.