Whether you are a first-time homebuyer, buying your second or third (or more) property, or refinancing your home, you must make sure that you have title insurance. Why does title insurance protect homebuyers? Follow along below.
What is Title Insurance?
First, what exactly is title insurance? There are two types: the lender’s policy and the owner’s policy. For homebuyers, title insurance essentially protects your property rights. Meanwhile, title insurance with a lender’s policy insures the financial aspect and investment of the lender or the bank.
Why Does Title Insurance Protect Homebuyers?
Whether you’re buying your first or second property, the title company may find that the previous owner(s) of the home you’re buying had two mortgages on the property. One mortgage is accounted for, but the second has not been accounted for or reported by the previous owners. Therefore you could be liable for this mortgage lien. But when you add title insurance during your home buying process, title insurance will defend you legally and financially, thus protecting you from any unaccounted liens that are not under your name.
Title insurance can also protect you against problems related to easements, building, or use restrictions, and claims (like those from bankruptcy).
Title Insurance and Refinancing
Even though you currently own the property and are simply refinancing, you are still taking out a new loan on the property. When this happens, lenders will conduct a new title search. This is where the lender’s policy comes into play. It is the responsibility of the lender to protect their investment which is why even with refinances, they still conduct title searches.
With that being said, the homeowner luckily does not have to purchase a new owner’s policy. The original title insurance policy from the first closing will suffice as long as you own the property.
The Cost of Title Insurance
Insuring the title of your home does come at a low, one-time fee. The typical amount of title insurance depends on the value of your property. According to the American Land Title Association, the title insurance policy costs a homeowner an average of 0.5% of the home’s purchase cost. All things considered, it’s a very small investment for the full asset value of owning your home. Finally, title insurance gives you peace of mind, which is always a plus when making a big decision and purchase.