When you buy a home, there are a lot of fees and costs associated with the purchase – it’s not as simple as just writing a check from your mortgage lender to the seller. One of the costs you’ll see as you approach the closing process is Title Insurance. Unique to home ownership, title insurance is an extra layer of protection for the buyer. While there are a few that recommend saving the money, choosing to purchase title insurance is a smart move and one that you should not skip.

What is Title Insurance?

Do I need Title InsuranceTitle insurance protects you, the buyer, from losing your investment (the down payment and the loan for your new house) in case there are any liens or defects with the house title. Although the real estate company and your mortgage lender will run title searches, sometimes things are missed. When you purchase title insurance, is the house title is fraudulent, or if there are charges taken out against the house.

For instance, of the previous homeowner had some remodeling or repairs done on the house, and didn’t fully pay the contractor, the contractor will take out a lien on the house. This is a judgment of fees owed to the contractor, that must be settled before the title can change hands. Basically, it forces the potential seller to pay their debts before they can sell the property. If the seller owes back taxes on the property, then a tax lien will be taken out on the property. The same thing applies – in order for the seller to complete the closing transaction, the tax fees must be paid.

Title Insurance ensures that the title insurance company, not you the buyer, will be responsible for settling these debts. Typically, title companies require the seller to settle these debts prior to closing, so that the title is free and clear.

Why should a buyer purchase title insurance?

Mortgage lenders are required by law to have title insurance for the homes that they approve loans. A buyer may choose to purchase their own separate insurance. So, if the lender already has the insurance, what are the advantages of a buyer purchasing their own policy?

  • If there is an issue before or after closing with the home, you are personally protected from prior liens. The title company will be responsible for taking care of the debts.
  • If there are errors or fraudulent aspects to the title, or if it hasn’t been properly reported to public records, then you are protected.
  • If the previous owners’ heirs show up and lodge a claim against the property, you, the buyer, are protected.

There is also an extended coverage option, which covers building permit violations, or structural damage. It also protects against zoning issues and incorrect survey. If a lawsuit is filed due to these, the extended coverage covers your down payment, and principal payments you’ve made, and any additional work or improvements you’ve made on the property.

If you have doubts about the security of your home title, especially if you plan to do extensive remodeling and renovations – investing more of your money on top of the purchase price – then you should definitely purchase title insurance. Typically, it costs around $2 for every thousand of the selling price, and that small investment is usually worth it for the buyer’s peace of mind.

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