Title insurance: What is it and do you need it?

Title insurance protects home buyers and lenders in the event that there is a dispute or other issue with the title of a home. It’s generally required as part of the home buying process. Common issues with titles include liens and unpaid back taxes.

A clean title is a requirement for any real estate transaction, and issues with the title can be costly. Title insurance protects against those costs. Title insurance can further protect you as the owner for as long as you own the property.

Below we’ll cover what title insurance is, how it works and whether you need it.

What is title insurance and why do you need it?

Title insurance is a type of insurance policy that protects home buyers and lenders from financial loss if there is a dispute about the title of a property.

Your lender might recommend a title insurance company, but you should do some research of your own. After all, title insurance can cost between $500 and $3,500, depending on your state, the cost of your home and what insurance provider you pick. 

Comparison shopping can shave down that price. There are also different types of title insurance, and you’ll want to make sure that you’re fully covered and not just the lender.

Title insurance is a common part of the home buying process, and is often rolled into the closing costs.

What does title insurance cover?

Title insurance covers any underlying issues with the home or property that the title company may have missed during the home-buying process, explains John W. Mallett, President, MainStreet Mortgage.  Here’s what title insurance typically covers:

• Ownership disputes: Title insurance can protect against claims disputing ownership rights, such as undisclosed heirs, forged documents, or errors in public records.

• Liens: It covers unknown liens on the property, including unpaid taxes, mortgages, or other debts that may affect the ownership.

• Fraud and forgery: Title insurance can provide coverage if someone fraudulently represents themselves as the property owner.

• Survey and boundary issues: It covers survey discrepancies, boundary disputes, or illegal structures encroaching on the property.

• Invalid Deeds and Documents: If there are issues with the validity of deeds, contracts, or other legal documents related to the property, title insurance can provide coverage.

Title insurance is valuable when the title company’s public record search fails to find any hidden issues like liens or ownership disputes. 

Types of title insurance

There are a few different types of title insurance. Below is a quick rundown.

Basic lender’s title insurance policy

This is the title insurance your lender gets. Lender’s title insurance will most likely be a required as a part of the mortgage. 

If there’s something like a mechanic lien or unrecorded easements and access rights, your lender will be protected. However, you will not be.

Typically, your lender has a title company they use and will secure the lender’s title insurance policy themselves. However, since you’re the one footing the bill, you can shop around if you’d prefer a different insurer.

Basic owner’s title insurance policy

Owner’s title insurance protects you, the homeowner. If an issue arises that wasn’t covered during a title search, and you suddenly need to hire an attorney to defend your home, owner’s title insurance will help you pay for that.

This type of title insurance is not a standard part of most mortgages. The lender will require coverage that protects them, but they will leave it up to you whether or not you get title insurance that protects you.

Extended owner’s title insurance policy

This is also called an enhanced owner’s title insurance policy. Per Mallett, the odds of something going wrong are really slim, but it can happen, especially the older your house is and the more property you have. Maybe a previous owner made some home improvements that break some zoning code, or, as noted, you could learn a favorite part of your property isn’t yours.

You get some unpaid tax bills on your property – it should have been paid long before you moved in by the previous owner, but you’re being told to pay up. Extended owner’s title insurance would pay for that.

Some of the random issues that could crop up that extended owner’s title insurance covers include:

• Building-permit violations
• Subdivision maps
• Covenant violations
• Living trusts
• Structure damage from mineral extractions
• Encroachments and forgeries after title insurance is issued

So if something goes wrong with your title, and it leads to you needing to go to court or spending a small fortune to make the problem go away, title insurance can be a lifesaver.

How much does title insurance cost?

According to the National Association of Realtors, the average cost of title insurance is around $1,000.

However, the amount depends on the state — each state regulates title insurance differently — and it depends on the price of your home. You may pay much less – or considerably more.

According to the American Land Title Association, you can expect to pay around half a percent of the purchase price of the property for title insurance.

What insurance companies offer title insurance?

There are many title companies. Some of the biggest names are:

• Fidelity National Title Insurance Company
• Chicago Title Insurance Company
• First American Title Insurance Company
• Old Republic National Title Insurance Company
• Attorney’s Title Insurance Funds, Inc.

If you’re stuck on who to turn to, Mallett suggests talking to your real estate professional or bank and asking for a recommendation.

When you pay for title insurance, though, you aren’t just paying money to insure you down the road. You are getting something out of it now. Before you buy title insurance, a title company is working to make sure there are no issues with your title.

“If you get a good title company, they will fix those issues for you,” Mallett says.

Once the title company determines everything is fine, they insure your home with title insurance. In the unlikely event that the title company didn’t actually catch everything, and then something goes wrong, then your title insurance will protect you.

How to buy title insurance

Buying title insurance is a pretty straightforward process.

• Ask your  real estate agent, lender or friends for recommendations for a title insurance company and research the insurer.
• Compare quotes from several insurers. You could try the American Land Title Association website, which has a search engine of title insurance companies.
• If you want to go the extra mile, the Consumer Financial Protection Bureau suggests asking for references from recent customers.
• Once you’ve made a decision, based on the lender’s reputation and price, choose your title company and contact your lender.

How to save money on title insurance

Your best bet is to comparison shop. You’ll also want to consider if the title company has a good reputation.

Once you feel you have found the title company for you, you won’t be able to negotiate much, if at all, especially if your state has strict rules about title insurers, but sometimes, you can negotiate some of the extra fees that may be tacked onto the bill. Even in this digital world, there may be some copying charges, for instance, that you can knock off the price.

You also can ask your title company if they can give you the “simultaneous issue rate.” A simultaneous issue rate may be granted if your lender requires a lender’s title insurance policy — which you will have to pay for — and you are buying a basic or extended owner’s title insurance policy — which protects you— and you pay for them both at once.

Title concerns for new home construction

Even if you’re buying a totally new home, you should get title insurance.

Even though the house may be new, the property is not. Somebody – probably many somebodies – owned your land before your house. As unlikely as it seems, problems can still crop up where the question of who owns your land comes up.

“The most important asset you have is probably going to be your home, and not to have title insurance protecting that is just a big mistake,” Mallet says. “That’s why lenders won’t do a loan without it.”

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