You're ready to sign on the dotted line and purchase your new home. Before you sign, your real estate agent is recommending title insurance. What is title insurance and why do you need it?
What is title insurance?
Title insurance is required and is a 2-part transaction. Part 1 is a property record search of the property you are seeking to purchase. Property record searches look for clerical errors, omissions in deeds, and any unknown liens or undisclosed heirs that may have a claim on the title. Part 2 of the title transaction is when your title company comes in. They issue title insurance that protects you in case there is a title dispute. Your title insurance will protect you from high court costs and loss of equity in the event of a title dispute.
Questions to ask
When it comes to finding the right title insurance company, there are 6 questions to ask before making your decision.
1. What kind of coverage do I need?
The standard owner's title insurance policy will protect you from things like title fraud, forgery, undisclosed heirs and spousal claims. You can boost your coverage with additional endorsements. Endorsements can be added for things like assessments, zoning, subdivision restrictions and more. Ask you title company about your specific concerns or a list of endorsements they offer.
2. Who usually pays for title insurance?
This can vary from state to state, but typically the buyer pays unless you have an agreement with your seller. If you are responsible for the title costs, you can usually negotiate with the seller to cover some of the title insurance. Most title companies will offer a discount if you purchase both the owner's and the lender's title insurance from them.
3. Is the seller insisting on a specific title company?
If you are the one paying for title insurance, you have the right to select the title company. Beware of using the same company the seller used to purchase their home years before. Choosing a different title company means fresh eyes on your property search which could reveal issues you can fix before closing.
4. Are title insurance prices regulated?
This varies from state to state so ask your title company if the prices are regulated. If the title insurance is regulated in your state, it doesn't mean you can't shop around. There are typically additional costs like wire transfer or courier costs. Ask your title provider for transaction costs instead of just your insurance costs.
In addition to price, buyers will want to look for the quality of the property search. You want to ensure that the search is thorough and uncovers any potential issues before closing. You will also want a title company that will be around in 10-15 years, should any problems arise. Be sure to check reviews and ratings before selecting your title insurance company.
5. Who should I listen to when it comes to recommendations?
As you purchase your new home, you may receive recommendations from your seller, your real estate agent, or your lender when it comes to title insurance. Your interests and the lender's interests are intertwined so listen to their recommendations first.
6. Have you researched your title company?
After all is said and done, you will want to work with a title insurance company that you can trust. You can check the financial solvency of title companies with ratings companies such as Fitch Ratings, Demotech Inc and A.M. Best Co. In addition, read online reviews from other customers regarding their experience with different title companies.
Once you've asked and answered all 6 questions, you are ready to choose a title company with peace of mind as you purchase your new home.