Title Insurance
If this is the first time purchasing a home, one might wonder what is title insurance, and is it really needed.
Title insurance is unlike mortgage insurance (which protects the lender in the event of default); it is not homeowner’s insurance (which protects you in the event of damages to your home); and it is not mortgage life insurance (which pays off a mortgage upon the borrower’s death).
Title insurance protects the purchaser and the lender by ensuring that they have full and clear title to the property, that no one else has any rights, liens, claims or encumbrances on the property. If any claims of ownership arise for the buyer or their heirs, the title insurance company which issued the policy is responsible for legal fees to defend your rights, and any losses arising from a valid claim.
The company which issues the title insurance policy conducts a title search to be sure the buyer will have free and clear title to the property, that the transfer of that title from the previous owners is handled correctly, and that the buyer is fully protected should anyone claim ownership to the property after the loan is closed.
The title search includes public records, and information from the title company’s database. If title problems are found, they will need to be cleared up prior to the purchase of the property.
Title insurance companies issue two types of title policies:
- Owner's Policy. This policy covers the homebuyer.
- Lender's Policy. This policy covers the lending institution over the life of the loan.
Both policies are issued at closing for a one-time premium, if the loan is a purchase. If refinancing the home, there should already be an owner's policy that was issued when the property was purchased, so only a lender's policy is issued.
