Title Insurance Isn’t Cheap, but It Can Be a Lifesaver

You’ll pay several fees on the day you close/settle your mortgage loan. And one of the biggest costs comes in the form of title insurance.

You might wonder why you are paying so much for this form of insurance. You might not even understand what it is. But this is important: You need title insurance to protect yourself. If you don’t have it, you could lose your home.

When you buy a home, you want a clear title to that property. This means that, say, the federal government doesn’t have a lien for unpaid taxes filed against the home you want to buy. You also want to make sure that no other individuals have their own claims of ownership on your new dream home.

This is where the title search comes in. Before closing/settlement, a title company will examine public records, including deeds, wills and trusts, to make sure all past mortgages and liens have been paid. The title company will also look for any pending legal action against your property. For instance, say the past owner failed to pay property taxes for five years. The local governing body might have a lien against the property as a way to collect those missed taxes.

The title search is not an overly expensive cost. You’ll likely pay around $150 to $400, according to research from Zillow.

What is more costly are the two title insurance policies you’ll have to purchase. First, you’ll have to buy an owner’s title insurance policy. This policy protects you in case the title search failed to uncover any existing liens or legal judgments against your home. If something does come up, the insurance company behind your policy is the liable party, not you.

You’ll also need to buy a policy that covers your mortgage lender in case title problems pop up in the future. This type of title insurance is known as a lender’s title policy.

You’ll buy both types of policy at closing/settlement. You can shop around with insurance companies to find the right policy. Your lender will often recommend a title-insurance company to you, though you don’t have to commit to that company.

According to Zillow, you may spend from $175 to $875 on each policy. In some states, the seller will pay for the owner’s policy while the buyer handles the cost of the lender’s policy. Check in with us to confirm our state’s regulations.

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