When buying a home, it’s important to cover all of your bases and make sure there are no discrepancies that could potentially impede your purchase. One of the most important insurance policies for new homeowners is called title insurance, which protects you against outside claims of ownership on the property. However, it only covers the homeowner on events that occurred prior to signing off on the policy. Follow along to finally get the answer to the question, “what is title insurance?”
What is Title Insurance?
Title Insurance at a Glance
Imagine you buy a home, get settled and then, all of a sudden, someone comes out of the woodwork claiming to be the property’s rightful owner. In a case like this, the seller could’ve been using forged or improperly filed documents in the home sale.
Legally, if the person turns out to be right, you have no case. You must give up the home. But there has to be something that can protect against cases like this? That’s what title insurance is for.
Title insurance safeguards the homeowner from any questions of ownership rights on the home’s past titles. If a random heir lays claim to the home a day after you sign your title insurance, you’ll be out of luck. This type of insurance is meant to ensure there have been no prior title discrepancies that would get in the way of a sale.
The Title Search
The only requisite for title insurance is a completed and resolved title search. This includes an exhaustive examination of the home’s previous titles to make sure there aren’t any existing claims to the property.
If any issues turn up during the search, it’s usually on the seller to resolve them. After the title search is accounted for and settled, you can receive title insurance that guarantees:
- A comprehensive title search was completed.
- Title issues are either fixed or covered under the policy.
- The title insurance company will cover you in the case of a title discrepancy, presuming the cost is less than the total cost of the home.
Owner’s Insurance
There are actually two types of title insurance: owner’s insurance and lender’s insurance. Owner’s insurance is the coverage that protects the homeowners in cases of past title disagreements. Its cost is based on the home’s total price and is completely optional. It’s a one-time purchase which will cover you until you no longer own that home.
Lender’s Insurance
Lender’s insurance protects the bank or whoever issues your loan. It is mandatory and based on a fraction of the total loan. As you pay off your mortgage, the policy amount will decrease. It ends when you completely pay off the loan.
If you decide to buy owner’s insurance with your lender’s insurance, the bank or institution selling it to you may offer a discount on purchasing them together.
What’s Covered under Title Insurance?
If you’re serious about title insurance, you should at least know what it covers. Title insurance typically includes:
- Fake documents
- Unknown heirs
- Falsely filed documents
- Fraudulent sellers
- Issues not found during the title search
Similarly, title insurance does NOT cover:
- Zoning complications
- Environmental protection laws
- Boundary disputes
- Post-policy claims
Title insurance is a significant factor to consider for any new homeowner. Should you decide it is right for you, it will protect your right to ownership from any past impediments.
