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It may seem like you have so many companies and services that help you buy a home, but one of the most important is the title company. The title company facilitates your closing and ensures the purchase is a solid investment.
Here’s everything you must know about title companies and how they work.
What Is a House Title?
A house title shows ownership of the home. The title has a chain of ownership. If a title searcher were to look up the property’s chain of title, they could see the ownership for many years prior. The title isn’t the mortgage deed that gets recorded with the county, though.
It’s a description of the physical property and a listing of any liens on the property. For example, when you take out a mortgageto buy the home, it’s a lien on the property.
Other liens may not be as ‘good,’ such as a mechanic’s lien for unpaid contractors who did work on your home or tax liens for unpaid taxes.
>> More: How to Apply for a Mortgage
What Is a Title Company?
A title company employs the title searchers and provides the title insurance mortgage lenders require. The title company is a key piece of the process.
They are responsible for determining if the home can be legally transferred and if there are any liens or encumbrances on the property.
The title company also issues the title insurance. You can buy both lender’s title insurance and owner’s title insurance. Lenders require title insurance for themselves (at your cost).
Owner’s title insurance is optional but highly recommended. Title insurance protects the lender and/or you, depending on the policy you buy from any cost incurred if someone stakes a claim in the property or tries to claim a past lien.
You buy lender’s title insurance every time you take out a new loan, but owner’s title insurance lasts for the entire time you own the home.
>> More: What Is a Title Contingency?
What Is a Title Company Responsible For?
Title insurance companies play a pivotal role in the home buying or mortgage refinancing process. Here’s what they do.
A property survey ensures the building is within its boundaries and any accessories, such as a fence are within property boundaries too. After the title company performs the survey, they’ll provide a title abstract that shows the results of the survey. While title companies don’t do this often, some may offer it to future home buyers. Each title company is different, so check the provider before you expect this service.
“Chain of Title”
The chain of title shows the property’s ownership through the years. The search looks for any illegal transfers or potential issues with ownership that could cause problems for you if you bought the home.
During the search, the title examiner also looks for existing liens on the property other than the current owner’s mortgage.
Title insurance provides financial protection should someone come forward and stake a claim in the property or try to prove they have an unpaid lien on it.
Lender’s title insurance paid for by you covers the lender’s interest in the property. If the lender incurs any financial costs because of the issue, the title insurance covers their costs.
Owner’s title insurance covers your interest in the property. It would cover any legal costs or other costs you incur if someone tries to claim the title search was incomplete.
It would also cover your costs if you were to lose the home to the claim. Some sellers cover the cost of title insurance, but each situation is different.
The title company also handles the closing. Once your lender gives you final approval to close, the title company will schedule the closing with you, the seller, lender, and the closing agent. You can also bring your real estate attorney to the closing.
The title company runs the closing, collects and disburses funds, and ensures all documents are properly signed, dated, and recorded.
>> More: What Are Closing Costs?
If you make an earnest money deposit, the title company may hold onto it. The title company is a neutral third-party in the process.
They hold onto the funds and only release them when a contractual obligation is met (you buy the house) or there’s an occurrence that gets you out of the contract, such as an inspection contingency.
Title vs. Deed: What Are the Differences?
The title and deed have many similarities, but there are differences too. The deed is the legally binding document all homeowners must sign at the closing.
Even if you aren’t on the loan but are married to the borrower or have other homestead rights, you must sign the deed.
The title is the document that states who owns the home. Whoever is on the title as homeowners must also be on the deed, but not necessarily all the loan documents.
For example, if you buy the home with your dad, but he is not going on the loan, you would sign the loan and title documents, your dad would only sign the deed and title documents.
Is a Title Company Necessary?
Yes, a title company is necessary for many components of the mortgage process. Even if you pay cash for a home, you want a title company to do a title search, issue title insurance, and facilitate the closing.
How Much Does a Title Company Charge?
Title companies charge various fees, depending on the services you need. The title services themselves can range from $1,000 – $1,500.
Title insurance can cost another $1,000 for a lender’s policy and $1,000 to $1,500 for an owner’s policy, but sellers may cover that cost.
What Services Does a Title Company Provide?
Title companies provide many services including:
- Title search
- Conducting a property survey
- Holding any escrow money
- Facilitating the closing
How to Choose the Best Title Company
You don’t have to use the title company your online mortgage lenderuses. You have the right to ask to use your own title company. If you go this route, consider these factors when choosing the best title company.
#1. Research All Options
Like any aspect of buying a home, look at all of your options. Do your research and find all title companies in your area.
Read reviews and see what others think of their services. Look at the size of the company, the number of title searches they do a year, and the services they offer.
#2. Consider Industry Experience
Experience is the key to a successful title search. If you’re concerned the property you want to buy has a ‘sketchy’ past, make sure you work with a reputable title company that can uncover any issues.
#3. Ask Around for Recommendations
Word of mouth is always a good way to find services too. If you know people who recently bought or sold a home, ask what they thought of the title company they used. Nothing beats real life and recent experience!
Bottom Line: What Is a Title Company?
A title company is a crucial part of your home buying process. Choose a title company you can trust since they hold the key to your new home.
A solid title search and helpful insight are the keys to a successful home purchase.