The home buying process is full of important decisions to make, from who does your home inspection to which lender you trust with your mortgage and financing options. However, one of the most commonly left behind protections that buyers skip during the closing phase is title insurance.
Whether through misunderstanding their title insurance options or believing that this type of policy is not worth the effort, buyers can be putting themselves at significant risk of financial loss later if they neglect to purchase title insurance. Still, the type of policy matters and can lead to some confusion if you do not learn more about the types of title insurance policies that are often involved during closing.
What Is A Lender’s Policy?
One common pitfall when buying a home is the misunderstanding that the lender’s title insurance policy also applies to homeowners. The reality is that it does not. If you, as the buyer, are required to purchase title insurance for the lender (which is a common stipulation when you secure a mortgage and close on a home), the title insurance policy that you purchase will not cover you in the event of a title issue.
It is the entity for whom the insurance policy is generated who is protected, regardless of who purchased it. The lender’s policy is often required by the lender as part of your purchase so that, as the lender secures your mortgage with their own money, they safeguard themselves against loss should an issue arise with the title to your home.
What Is An Owner’s Policy?
If you would like to secure a title insurance policy that protects you, the homeowner, you will need to purchase coverage separately from the lender in an owner’s policy. This ensures that, in the event an issue arises with your property’s title, you are also financially protected against the consequences.
Advantages Of Carrying Title Insurance
Title insurance is important— and this is why most lenders make lender’s title insurance policies mandatory as part of servicing a mortgage. If you were to purchase a home without title insurance, you could discover later that the home’s documents were not filed correctly, or that important information went unreported.
As the new owner, you would then be responsible for any financial repercussions of these discoveries; this could include paying any outstanding liens on the property (even if you were not the one responsible for creating them) or even giving up your home entirely if an issue in ownership means that the home never successfully transferred to you after all.
All of your equity and improvements to the home would be lost, which is why it is wise to consider title insurance. Should these issues arise after you have a policy, you would be protected from financial responsibility for outstanding debt as well as any legal fees to defend your right to ownership.
Who Purchases Title Insurance?
Who purchases a title insurance policy can vary; what is important is who the beneficiary is. Buyers will typically purchase a policy for their lender rather than the lender accepting that cost themselves. However, in order to improve the appeal of a home purchase offer, sellers may elect to include title insurance for the buyer as part of their offer.
Title insurance cannot be transferred from the seller to the buyer; even if the seller had title insurance of their own, this does not mean that the new buyer does. However, the seller can choose to purchase title insurance for the buyer. The buyer can also purchase insurance for themselves, either at closing or after (though during closing is both simpler and safer).
Title insurance is a single upfront cost rather than the payment of a monthly premium, so once you have it, you will never have to think about it again, and its cost is a small percentage of the total value of your home, making it affordable for most buyers.
Trust The Experts To Provide Robust Title Insurance And Answer Your Questions
Whether you are looking to learn more about how title insurance works and whether it is right for you or you are ready to secure a policy for yourself or a buyer interested in your home, be sure to trust the experts.
The professionals at Mathis Title Company would be happy to answer any questions that you may have and provide comprehensive information about title insurance so that you can make the most informed decision for your situation. Reach out to learn more or to schedule an appointment to get started on a title insurance policy that suits your needs.