By Brian Klein, Realty Biz News, November 19, 2013.
If you take out a traditional loan, you are going to be required to buy title insurance for at least the value of the loan. It’s a good idea to take out a policy that includes the value of your down payment as well. Like many things regarding real estate, title insurance varies from state to state. In many states, it’ customary for the seller to purchase the title insurance policy to assure a clean title is conveyed at closing. In other states, it’s the responsibility of the buyer. If you’re not sure, ask your real estate professional which is customary.
Between the time that your offer is accepted and when the deal closes, the title insurance company will perform a search of public records to make sure clean title can be delivered at closing. Approximately one-third of all searches reveal a small problem with the title that the title expert is able to correct before closing. For example, the current owner may have had minor construction done on the property but never fully paid the contractor. Or property taxes may not be paid up to date. Other common issues include:
- Errors or omissions in deeds
- Mistakes in examining records
- Undisclosed heirs
One is the owner’s policy. This policy covers the full purchase price of the home and is the most common. The other is a loan policy. It only covers the amount of the loan. This is the minimum policy your lender will allow. It does not cover any money you have directly invested in the home. Before closing the deal, be sure you understand which type of title insurance policy you have.
There is no set fee for title insurance. If you are paying the premium, you want to shop around for the best terms. You don’t necessarily want the cheapest premium. You also want to be sure the title insurance company you go with is financially stable and able to pay in the event a problem develops in future years.
If you are refinancing, your lender (whether the same lender or a new lender) is going to require you to take out a new title insurance policy. This is a time that you want to go with a loan policy that costs less and only covers the outstanding loan. As the homeowner, the original policy covers you and your heirs as long as you have an interest in the property.
Also, if the current owner’s policy isn’t very old, you want to ask their title company for a discount since they have recently researched the title and won’t have to go back in time as far with a new search.
Some people become confused about why they need title insurance on new construction since no one has ever owned a home on the property before. Title insurance covers both the cost of the house and the value of the land it is built on. Someone has almost certainly held title to the land before you acquired it. However, since they don’t need to research for construction liens and other possible problems associated with the building, you should be able to negotiate a discounted premium for new construction.
If you have questions about your title insurance, be sure to ask either your insurance representative or your real estate agent.