As you go through the process of closing on a home, you’re likely to hear the term “title insurance” as some point throughout the proceedings. This officious-sounding phrase may be recognizable or completely unfamiliar, depending on whether you’re a seasoned pro or first-time home buyer. While a straight-forward concept in most regards, there is (at times) some confusion about what title insurance actually is and whether it’s truly necessary. To help make sense of it all, we’ve compiled a list of the title insurance questions we’re asked most often.
What, Exactly, Is Title Insurance?
Before we get into specific questions about title insurance, let’s first review what title insurance actually is. Title insurance is a type of indemnity policy that protects a participating party against financial losses associated with a specific piece of real estate in the event a title problem arises following the settlement process.
What is the difference between lender’s title insurance and owner’s title insurance?
A lender’s policy safeguards the financial interests of the institution supplying the mortgage should the loan become unenforceable due to title problems that interfere with the proper transfer of ownership. An owner’s policy protects the home buyer against financial loss surrounding their property should title defects surface after closing.
Is title insurance mandatory?
Most lenders do require that home buyers purchase a lender’s title policy. Owner’s title insurance is not mandatory, but is highly recommended for most people who purchase real estate.
How can owner’s title insurance protect my interests?
Having an owner’s title insurance policy in place can cover legal costs for defending title as well as remunerate the homeowner should another party be successful at proving a sound ownership stake in the property for which the policy covers.
What can I expect to pay for title insurance?
Both lender’s and owner’s title insurance is paid in a single payment submitted during the home closing process. The cost of these policies is based on the loan amount and sales price for a new purchase and the loan amount for a mortgage refinance.
What will an owner’s title insurance policy cover?
Depending on the policy type (standard vs. enhanced), owner’s title insurance may cover court costs associated with defending the homeowner’s interests and financial loss due to a range of title defects, such as fraud, recording errors, and improperly executed wills, among others.
Do I need a new policy if I refinance?
Both a lender’s and an owner’s policy will remain in effect until the homeowner or their heirs sell or transfer ownership of the property to another party. If the loan is refinanced, the lender will require the purchase of a new Lender’s policy; however, a re-issue rate will be given. The original owner’s policy will still be applicable following the refinancing of a home loan.