Do I Have To Have Title Insurance To Buy A Home?
Is title insurance necessary when purchasing a home, or just an extra optional expense?
Title insurance can be one of the most notable expenses when buying a home and taking out a purchase mortgage. So what is it? It title insurance really required? How can home buyers and real estate investors get a better deal on title?
What is Title Insurance?
Title insurance is insurance which ensures ownership of a property and the right to pledge it as collateral and ability to sell it. The insurance part protects owners and lenders from other claims to ownership, and from others from giving up equity in the property.
There are two types of title insurance:
- The Lender’s Policy
- The Owner’s Policy
When a buyer takes out a purchase mortgage the lender will invariably require title insurance. This gives them the confidence that the borrower actually has the right to pledge the property, and protects the lender in case someone else shows up claiming to have an interest in the property. Note that this lender’s policy does not provide any coverage to the owner. In the case of a claim or legal challenge the title company will be on the spot to step up and challenge it or compensate the lender, but not the owner.
Why You Can’t Afford Not to Get an Owner’s Policy
An Owner’s Policy is optional. However, the cost is negligible compared to the Lender’s Policy, especially as all the hard work has been done clearing title for that already. So what’s on the line for the true penny pincher that doesn’t want to spend a dime more than they have to?
Put simply; everything.
This isn’t like optional insurance for a mobile phone or TV. If one of those blows up on you it might cost you ten thousand dollars, but not much more. If you lose your home that’s quite possible hundreds of thousands of dollars or more, plus of course the roof over your family’s head at risk.
Some have bought homes without title insurance. Some have lost incredible amounts of money. The recent foreclosure crisis in particular has created clouds and uncertainty about hundreds of thousands of property titles. Without insurance buyers are gambling, and with pretty poor odds in their favor.
Title Insurance Tips for Home Buyers
- Buyers cannot be forced to use a specific title insurance company
- Shop around just as for a mortgage or homeowners insurance
- Negotiate fees
- When selling or refinancing bring the previous policy for a discount
- Have title searches performed as early as possible to spot potential issues
- Secure more value by having the title company or attorney provide additional complimentary services such as contract reviews, negotiating liens or past taxes.
So ultimately, while there are some cases in which title insurance may not be required to buy a home, it is always a smart money move.