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Consider the following scenario: you wake up one morning to discover that someone else owns the home you’ve just acquired. You lose your home as well as your down payment, all before you’ve finished your first cup of coffee.
Doesn’t that seem impossible? It isn’t. Homebuyers get title insurance to protect themselves against this type of occurrence. This article will cover some details surrounding title insurance, its cost, and what it covers.
Understanding Title Insurance
At its most basic level, title insurance protects the mortgage lenderand, in some cases, the owner against the possibility of losing the property if another party asserts ownership after the closing.
Before the advent of title insurance, everyone purchasing real estate was responsible for ensuring the seller’s title to the property was legitimate. If it were later determined to be invalid, the buyer would forfeit the property.
Title insurance essentially protects against any problems in the title that exist in the public records at the time of your property’s purchase or refinance. Title flaws can include the following:
- Deed errors or omissions
- Errors in record examination
- Signature forgery
- Unidentified heirs
- Unknown heirs
- Tax liens for unpaid taxes
- Contractors’ liens
While title insurance protects your lender, it does not usually protect you, the homebuyer, unless you purchase additional coverage.
There are two kinds of title insurance:
- Home Lender’s Policy: This policy guards the lender in the event of a title dispute. The policy will be in effect for the duration of the mortgage.
- Homeowner’s Policy: As the name suggests, this policy protects the homeowner in the event of a title dispute. This policy is offered on the home’s total purchase price (not including modifications) and covers any legal fees incurred in defending the title dispute. This insurance is valid for the duration of the homeowner’s and their heirs’ ownership of the property.
How Much Does a Title Insurance Policy Cost?
According to the National Association of Independent Land Title Agents, title insurance can cost anywhere from a few hundred dollars to $2,000. A lender’s and owner’s title insurance coverage costs an average of $1,374 for a house priced at the national median value of $200,000.
And if you live in a state that allows insurers to set their rates (which is the majority of the country), you may find that quotes differ by hundreds of dollars. It’s a brilliant idea to shop around for the coverage you and your lender require without adding too much to your closing costs.
How to Calculate Title Insurance Costs
The following factors influence the price of your title insurance policy:
- The cost of the property.
- The type of transaction (purchase vs. refinancing)
To begin, keep in mind that each state handles title insurance differently. The state insurance department determines the premium rates that a title company can charge in Florida, New Mexico, and Texas. Title insurance firms have more leeway in setting and changing their rates in other states. Even in jurisdictions where premium rates are fixed, insurers may charge varying supplementary costs that you can compare or negotiate.
Title insurance rates are typically expressed as a “rate per thousand.” This is because title insurance policy premiums are based on the value of your home. It’s also typical for insurance firms to establish premiums in tiers.
For example, if you buy a $300,000 home, the rate per thousand may be $5.75 for the first $100,000 and $5.00 after that, resulting in a $1,575 premium.
Another consideration is the type of transaction you’re conducting. You should consider getting a lender’s insurance and an owner’s policy when you buy a property. If you decide to purchase an owner’s insurance, it usually is less expensive to get both policies (lender’s and owner’s) from the same provider than purchasing both separately.
If you refinance your house (pay off your present mortgage and create a new lending contract), you’ll need to acquire another lender’s policy because the lender in the new refinance agreement will want to be insured. However, your owner’s policy typically lasts as long as you or your heirs own an interest in the home, so you wouldn’t need to acquire an extra owner’s policy.
What Is Included in the Average Cost of a Title Insurance Policy?
When you obtain a title insurance quote, you may receive an itemized breakdown of the title company’s fees. Certain states require that fees be included in a single title cost quote, while others require itemized. An escrowprofessional can assist you in determining title closing expenses. Fees associated with title insurance quotes may include the following:
- Endorsement fees
- Title search fee
- Closing protection letter
- Deed preparation fee
- Government recording charges
- Tax and other certificates
- Overnight mail charge
- Wire fee
- Transfer tax
- Settlement fee
- Notary fee
- Document preparation fee
- Email/electronic document fee
Who Offers Title Insurance?
Title insurance coverage for homeowners is acquired directly from title insurance companies, which your realtor and/or real estate attorney should be able to recommend. You may also shop independently, but ensure that the firm you choose is licensed to provide insurance in your state.
How to Save On Title Insurance Costs: Tips and Tricks
While some states require that title insurance premiums be the same regardless of who you work with, the majority of states allow for cost savings through comparison shopping. Even in states with heavily regulated title insurance industries, there are ways to save. The following are some strategies for reducing your title insurance premiums.
#1. Shop Around for Rates
If your state does not restrict insurance premiums, shop around for the best deals. Ensure that you are not compromising on customer service to save a few dollars: Resolving a title dispute can be stressful, and you’ll want to work with a company that will guide you through the process. Check online reviews and your real estate agent for recommendations.
#2. Bundle the Title Insurance Policies
If you need a lender’s policy and want extra coverage of an owner’s policy, ask about discounts for buying both policies together.
#3. Negotiate with Seller
Closing fees are always negotiable and paying up the tab for title insurance may be worthwhile for a seller who is extremely keen to complete the transaction. However, exercise caution while utilizing this strategy in a competitive market.
#4. Are title Insurance Fees Negotiable?
Title insurance rates are regulated in most states, but the fees are not and are often negotiated. Ask the seller if they’ll cover the cost of your title insurance; it’s worth it. There are occasions when they will, which is far preferable to haggling over fees.
Is Title Insurance a Rip-off?
In the absence of a claim or usage of the coverage, it’s easy to write off insurance policies as superfluous or a bad investment. However, skipping out on coverage is a dangerous move that might have disastrous financial ramifications if something goes wrong.
The cost of title insurance is reasonable when you consider that a buyer of your house might discover, for example, that you have an unpaid loan or lien, a deed that was not witnessed, or a bogus claim of interest on your title. In these cases, your title insurance company will come to your aid and settle any issues that may arise.
To protect yourself against the worst possible results, it’s always a good idea to purchase title insurance, which is relatively modest compared to the total cost of your home.
Bottom Line: Title Insurance Costs
Title insurance is a tiny and frequently overlooked expense when compared to the rest of your home-buying fees. However, this does not imply that you should forego it. Consider it a small investment that will help you protect your most valuable asset – your home.