Mortgage 101
December 11, 2020

What is Title Insurance and Why Do You Need it?

Picture this: You bought your dream home, but suddenly, your ownership is being challenged. This is where title insurance comes to the rescue! Title insurance can protect you and the mortgage lender if any possible issues arise over the ownership of the property. It’s a one-time payment, paid at closing, that covers certain legal costs of a title dispute, depending on the selected policy.

Title insurance is available in two kinds: lender’s title insurance and owner’s title insurance. Most lenders require a lender’s title insurance policy which is purchased by the borrower to protect the lender should any title issues come about. Since lender’s title insurance only protects the lender, the borrower may elect to also purchase an owner’s title insurance policy that will protect them against defects in title.

How Does it Work?

Any event that triggers a transfer of ownership of a property is typically filed in public records. When you get title insurance, the title company searches through the property’s records, looking for any defects or issues in order to verify ownership. Once you have title insurance, you or the lender, depending on the policy, are financially protected should anything that is covered under the policy come up to challenge your ownership.

What Does Title Insurance Cover?

The search to verify ownership may not always pick up on every defect. There’s still a risk of title issues coming up that the search didn’t discover, and that’s when title insurance comes in handy. Title insurance, depending on the policy, can cover different situations; Here are a few of them:

• Forgeries or fraud

• Filing errors

• Tax record errors

• Back taxes

• Undisclosed or missing heirs

• Rights of divorced parties

• Conflicting wills

Do You Have to Get Title Insurance?

When it comes to getting a mortgage, most lenders will require you to purchase a lender’s title insurance policy. You can also purchase an owner’s title insurance policy if you want more protection for yourself. However, a lender’s title insurance policy will most likely be the only one necessary to get a mortgage. If you want to be sure you’re protected against potential defects or issues with your property’s title, title insurance is a great way to have that peace of mind as well as coverage in case something with the title of the property is discovered after closing. An owner’s policy protects you at the purchase price for the entire time you own the home, while a lender’s policy protects the lender on the remaining mortgage balance, decreasing throughout the life of the loan.

How to Get Started

If you’re looking to buy a house, it’s important to be informed when it comes to title insurance. Our experienced Loan Originators can help you understand how title insurance applies to your situation. Plus, they can answer any questions you may have, and they can even refer you to an expert that can answer more specific title questions you may have. Just contact us today to get in touch with a knowledgeable and helpful Loan Originator.

Sources: Bankrate, Zillow, Investopedia

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