Title search and insurance are critical parts of any real estate transaction, whether residential or commercial. In most cases, the work done by a title company happens behind the scenes, which can make it seem like a mystery to some. In fact, “why do I have to pay for title search?” and “why do I need title insurance?” are two of the most common questions we hear!
If those questions are on your mind, you’ve come to the right place: we’ve rounded up some of the most frequently asked questions in our industry and answered them for you below.
Keep in mind that title rates, laws, and customs vary based on location. If you have more specific questions related to where you live, consult your realtor and/or attorney.
1. Is Title Insurance Required?
Lender’s title insurance is required by most lending institutions as a way to insure their security interest in the property. Owner’s title insurance is an optional purchase, although it comes strongly recommended.
2. Why Do I Need Title Insurance?
The basic purpose of title insurance is to protect a property buyer from any issues that may arise with the title on the property. Common problems with title include errors in public records; unknown liens or easements on the property; unknown, undisclosed or missing heirs; fraud; and more. To learn more about the most common title problems, click here.
3. What Does Title Insurance Cost?
Title insurance is a one-time payment made when purchasing a home or commercial property. Typically, the total cost of a title insurance policy is between 0.5% and 1.0% of the purchase price of the property. As such, the cost of title insurance is really determined by the value of the property and the strength of the local property market.
For example, a 2,000 square foot home that sells for $500,000 in one area may have a title insurance cost of between $2,500 and $5,000, while insurance on a similar home purchased for $350,000 in another area would only cost between $1,750 and $3,500
Keep in mind that rates vary from state to state and are negotiable in some cases.
To learn more about the costs associated with title insurance, click here.
4. Who Is Responsible for Paying Title Insurance Costs?
There are various customs regarding the purchase of title insurance. In some areas of the country, it is customary for the seller to purchase the owner’s policy for the buyer, whereas in other areas the buyer purchases this important protection.
5. Why Are There Two Types of Insurance in My Closing Costs?
Your closing costs might include two types of title insurance policies: a lender’s policy and an owner’s policy. Here’s how they differ.
If you’ve ever mortgaged a home, chances are you were required to purchase a title insurance policy. This policy protects the bank or other lending institution for as long as they maintain an interest in the property (typically until your mortgage is paid off).
As a buyer, you also want to protect your investment—and the ownership rights that come with it. This is why it’s wise to purchase an owner’s policy of title insurance, which will protect your rights as the homeowner for as long as you or your heirs have an interest in the property.
Both title insurance policies not only pay valid claims and legal fees to defend against hidden title issues, but also help to decrease ownership risks by providing a thorough title search prior to the issuance of either policy.
6. What Does the Title Search Process Include?
Any real estate transaction involves an in-depth title search and underwriting process. The search process involves searches for many different types of information, including:
- Mortgage information
- Street and sewer assessments
- Taxes and levies
- Easements, judgments, and other court proceedings
- Boundary issues
To learn more about the title search process—and the peace of mind that working with a good title company can bring—click here.
7. Do I Need Title Insurance When Refinancing?
If you’re considering refinancing your mortgage, you may be surprised to see that you are required to purchase a new lender’s policy of title insurance. This is because a lender’s policy only provides coverage for the life of a loan. When a home is refinanced, the life of one loan ends and another begins. Thus, a new lender’s policy for title is required.
However, there is no need to purchase a new owner’s policy when refinancing, because an owner’s policy provides coverage for as long as you or your heirs hold an interest in the property.