Purchasing a new home means managing a variety of details. From working with mortgage companies to signing the purchase agreement with your real estate agent, you have a lot to think about. Title insurance is one of those things you need to consider, but what do you need to know when it comes to purchasing title insurance?
What is Title Insurance?
Title insurance is an insurance policy that protects your interests and the interests of your lender when it comes to real estate transactions. Every home sale will require two types of title insurance. A lender's policy will protect the lender from any claim against the title to the property. An owner's policy protects the owner or buyer in case of any clerical error or undisclosed heirs not present in the title search. Your policy will pay to defend you in court and compensate you for equity if there a claim on your title down the road.
What does title insurance protect?
Title insurance, depending on the policy, will protect both the lender or the owner in case of the following:
- Clerical errors on the title
- Any undisclosed heirs
- Omission of deed on the property
- Any unknown liens
Unfortunately, if any of these occurs, the prior heir of owner of the deed can claim the right to your property. You title insurance company will search property records and document a chain of ownership to protect you before you close on your property.
What do you need to consider before purchasing title insurance?
There are many things to consider before selecting a title company and purchasing your policy. Typically, your attorney or real estate agent can help you navigate this process. But before you make your selection, there are some variables to consider:
1. Choosing A Title Company
Choosing a title company is an important part of the process. Other parties like the seller or real estate agent can recommend a preferred company, but it is your right to choose your own title company if you are paying for it.
As far as pricing goes, most states regulate title insurance which means that pricing should be similar across title companies. Instead of pricing, look at the quality of the company. You'll want to select a company that does thorough research on the title to the property. Find a company with a good reputation and will go the extra mile when it comes to your title.
2. Types of Coverage
When purchasing title insurance, check the coverage. Typical owners policies will cover fraud, forgery, and undisclosed heirs. You can also check into additional coverage for an extra fee. For example, a restriction endorsement will cover if your new construction inadvertently violates restrictions in your subdivision. Check with your title company about any additional coverage you may require.
3. Who is paying
This varies from state to state so you will want to check which portion you will be responsible for, if any. As a rule, if you are paying -you can choose the title company. Title premiums are paid in one lump sum at the time of closing.
4. Title Company Recommendations
Many of the parties in a property transaction may have a recommendation on the title company. Your seller's may have a company they have worked with in the past. Additionally, your lender and real estate agents can be a source of information. The best rule of thumb when seeking recommendations is to check with your lender. Lender's have a vested interest in title insurance and can lead you to quality companies for your purchase.
5. Additional Research
It doesn't hurt to do some additional research. You'll want a title company with a great reputation and has been around for a while. You can check financial solvency on websites like A.M. Best Co. or Fitch Ratings.
Considering these things upfront will give you peace of mind on closing day. Work with your lender and real estate agents to find the best choice when it comes to choosing your title company so you can kick back and relax at closing.