A First-Timer's Guide to Title Insurance

A R T I C L E S O U R C E :
H T T P : / / W W W . U P D A T E R . C O M / M O V I N G - T I P S / A - F I R S T - T I M E R S -
G U I D E - T O - T I T L E - I N S U R A N C E
Imagine this – you've
purchased your new home,
unpacked the moving boxes,
and have finally started to
settle in, only to receive an
angry phone call a few days
later from someone claiming
to be the property's rightful
owner. It turns out that the
seller was a fraud using
forged papers to sell a home
that wasn't theirs! The worst
part? Legally, the home
doesn't belong to you, either.
The tragedy!
While this may seem like a
far-fetched scenario, over
half of all real estate
transactions have title-related
issues of some kind. Luckily,
these disasters are
preventable with title
insurance — if you can
actually figure out how it
works! Many new home
owners don't quite
understand what title
insurance is, let alone why
it's a necessary purchase.
But with this plain English
guide, you'll learn what title
insurance is in a nutshell and
how it will help protect your
investment.
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First Things First – A
GlossaryTitle insurance jargon is
notoriously confusing, so here
are a few key terms translated
for first-timers: Title: A title is
the document that proves an
individual legally owns a
property. Escrow: Escrow is
the period of time where a third
party (such as a title company)
holds the funds for the home
sale until the transaction is ready
to be completed. Title search:
During escrow, the title search is
conducted to find mishaps in
past titles for the property.
Lien: If an individual owes
money to someone else, that
person (the lienholder) can
become the owner of the
debtor's property until the debt is
paid.Now that you've mastered
the lingo, let's talk about title
insurance!
Owner's Insurance vs. Lender's
InsuranceThere are two types of
title insurance: lender's
insurance and owner's
insurance. Lender's insurance
only protects whoever is issuing
the mortgage loan (like a bank),
and the policy cost is a
percentage of the loan amount
— not the home's sticker price.
As you make mortgage
payments, the policy amount will
go down, and once you pay off
the loan, the policy ends.
Owner's insurance, on the other
hand, protects the home buyer
from title-related issues that
may arise, even after a thorough
title search. The price is based
on the total cost of the home,
not the loan amount. You pay a
one time title insurance fee
upon closing, and your policy is
valid for as long as you own the
home.
Is title insurance even
necessary?Nearly all lenders
require a lender's policy to
protect their investment in the
property — there's no getting
around it! In contrast, owner's
policies are optional. Though a
title insurance company may
offer a discount for buying both
policies together, there is no
requirement to purchase an
owner's policy in addition to a
lender's policy. You're probably
wondering — why bother paying
for an owner's policy if it's not
mandatory? Remember that
your lender's policy only covers
the lender's investment, or the
value of the loan. This means
that the home's total value isn't
covered, so an owner's policy is
a small price to pay for
protecting the total cost of your
investment. Even if you never
have to file a claim, your peace
of mind is priceless!