Title insurance is just one of many potential line items that home buyers face at closing. The entire process of buying property can feel overwhelming, with paperwork to sign, multiple parties to contact, and large amounts of money changing hands.
The good news is that title insurance does not need to be complicated—in fact, it is a simple step in the closing process that protects a buyer’s new investment against unexpected loss. However, in order to make sure that you are properly covered, you should understand the difference between a lender’s policy and an owner’s policy, as well as what is required during closing and what is optional.
What Is Title Insurance and What Does It Do?
Title insurance is just one type of insurance that a homeowner can hold to safeguard their property. It is not the same thing as homeowner’s insurance, which protects against accidents and damage such as fires or a tree crashing through the roof. Instead, title insurance focuses on the property’s deed—the record of who has owned the home in the past, when it was sold and more. If errors crop up in this important record, the homeowner may find their investment in jeopardy.
For example, say that a buyer closes on a home that they purchase from another private buyer. After the purchase is complete, they find out that the previous seller was not the true owner of the property and so did not have the legal right to put it on the market. In this case, the new owner does not legally own the home, and they may be forced to move out and lose any equity they have put into the property. This is just one potential example of an erroneous deed that can threaten homeowners.
Title insurance protects against circumstances like this. It covers errors in the title itself, such as forgery and mistakes, as well as other common issues such as the discovery of previously unknown heirs. Buying a home is the biggest investment that many people will make in their lifetimes, and title insurance keeps that financial decision secure.
What Is the Difference Between Owner’s and Lender’s Title Insurance?
When buyers go through the closing process, one of the most common mistakes they make is to assume that title insurance is included in all of the paperwork. This usually happens because they see that they are paying for what’s called a “lender’s title insurance policy.” However, a lender’s policy is not the same thing as an owner’s policy.
The lender—which is the entity that is lending money, usually in the form of a mortgage—requires the buyer to purchase title insurance for them to protect their financial investment. If a problem arises with the title, the mortgage company does not want to lose their money.
This lender’s policy applies only to the lender themselves, and it will not cover the homeowner. Instead, the buyer will need to purchase their own policy, called owner’s title insurance. Title insurance is valid for the entire time that the designated person lives at the property, so a one-time payment protects you for as long as you live in your new home as long as you have your own owner’s policy.
Does Virginia Require Owner’s Title Insurance?
Some states require that new home buyers purchase title insurance for both the lender and themselves. Virginia is not one of these states, so home buyers are not required to purchase owner’s title insurance. This leads many new owners to neglect purchasing a policy as a simple way to cut down their closing costs.
However, title insurance is a worthwhile investment that can protect buyers from thousands or even hundreds of thousands of dollars in losses, as well as the loss of their physical home. Because its cost is calculated based on a percentage of the home’s value at closing, title insurance is usually very affordable. Unlike other insurance, it is charged as a one-time fee rather than paid monthly as a premium. While no buyer is required to purchase an owner’s title insurance policy in Virginia, it is highly recommended.
Trust the Experts to Provide the Highest Quality Title Insurance Guidance
Title insurance does not need to be complicated. As a new home buyer, you have enough to think about already during the closing process. Leave title insurance to the experts. The professionals at Mathis Title Company can answer any questions you have about how title insurance works, what elements you need to include in a policy and more. Reach out to schedule an appointment to discuss your options.