What is Title Insurance? A Guide For First Time Home Buyers

A mortgage is a very heavy responsibility, and on that will stay with you for the next couple decades. It’s important to make sure that as a purchaser all of your bases are covered. Forgetting small details, like neglecting to find title insurance, can throw a wrench in the purchasing process. It’s important to ensure the mortgage loan goes through without a hitch and nothing disrupts the sale. Here’s an explanation as to why a small, inexpensive detail like title insurance is so important when buying a home.

What is title insurance?

According to the Consumer Financial Protection Bureau, title insurance protects lenders from title issues. Every home’s title must be searched thoroughly before a purchase or sale is made. Sometimes, however, details slip through the cracks. In rare cases, property deeds from sellers prove to be falsified, there can be undiscovered liens on the property that affects its sale, or inheritance disputes can put your ownership in question. For these reasons, homeowners are required to have title insurance on their mortgaged property.

How is Title Insurance Used?

Standard title insurance policies are designed to protect a bank’s investment, not your investment. If ownership of your property were to come into question, it is the bank’s responsibility to work with you to file an insurance claim that will pay off your mortgage loan and absolve you of responsibility for the mortgage payments. The bank holding your mortgage must make a claim against the insurance policy with your help. The insurance company would pay the bank for the loan amount on the property and you would walk away. There are ways that you can protect yourself from walking away empty-handed, though. Homeowners can protect their own interests with an expanded owner’s title insurance policy.

Why do you need lender’s title insurance?

Title insurance is the only thing protecting banks and homeowners from taking a huge loss in the event of an unforeseen circumstance that would make their home purchase invalid. Insurance companies and banks require a thorough title search to be performed before a mortgage loan contract can be signed. When the title search is complete, all parties are generally satisfied that the sale of the property is legally permissible. That isn’t always the case, though. If ownership of the property is challenged by a person with a legitimate legal claim, you will probably lose your home. Without title insurance, you would also lose all of your equity. You would walk away essentially penniless. If you buy title insurance, your insurance company will make it right with the lender.

If title insurance is designed to help banks, why don’t banks pay for their own insurance?

Lender’s title insurance is your legal responsibility. You cannot secure a mortgage loan without it. Lenders simply will not allow you to keep a mortgage with their companies without maintaining a policy throughout the life of your loan. It’s true that standard policies only protect lending institutions from title claims. You can, however, purchase your own owner’s title insurance policy. Owner’s policies allow homeowners to walk away from a title claim with money in their pockets.

If purchasing a home is on the horizon, look into the price of securing a policy now. First time homebuyers are encouraged to contact us today for a quote on lender’s and owner’s title insurance.