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Why do I need title insurance and what should it cost?
What Is Title Insurance?
"Title Insurance" protects the insured from losses caused by problems with the Title, such as someone claiming ownership of a property you have purchased or a lien on the property caused by a previous owner not paying a worker.
"Title" indicates who has legal ownership of a property.
Most Title Insurance provides no protection for the home owner, but instead protects your mortgage lender. If you get a mortgage to purchase a property, your mortgage lender will require that you buy Title Insurance (lender policy) so that the mortgage will be repaid in the event that you lose the property because of problems with the Title. If you want to protect your own equity in the property from Title problems, you will also need to purchase a separate Owner's policy.
Title Insurance is paid as a lump sum at closing when you purchase a property, and it provides coverage for any problems in the Title prior to your purchase for as long as you own the property or until you refinance and change lenders.
How Much Does Title Insurance Cost?
The cost of Title Insurance will vary dramatically by state because of different services included, or not, in the Title Insurance premium. In some states, the policy cost is only for the insurance, in other states the cost of Title Insurance includes expense of the Title search and even closing costs.
In general, the cost of Title Insurance is around 0.5% of the purchase price of your home. So if you are buying a $300,000 home, your Title Insurance will cost around $1,500.
How Do I Get A Good Deal On Title Insurance?
Most people select their Title Insurance company based on a recommendation from a Realtor or a Mortgage Broker. However, Realtors and Mortgage Brokers receive a large number of benefits and incentives from Title companies, so their recommendation might not be the best for you. Title Insurance rates do vary, so you can potentially save money by doing your own research. You should:
- Get Your Good Faith Estimate: Your lender is required by law to provide you with a good-faith estimate of all loan costs, including Title Insurance, within days of your application.
- Know What Is Included: Make sure you know which services and costs are included in "Title Insurance" in your state so that you make an apples to apples comparison.
- Make Some Phone Calls: Call a few Title Insurance companies in your area to see what rates they are offering.
- Talk To Current Title Company: Find out the current provider of Title Insurance on the home you are buying and ask if they will offer a discount to stay with them (their costs are lower because they've already done the Title search on the property). This is doubly true if you are refinancing your house.
- Negotiate With The Buyer / Seller: Whether the buyer or the seller typically pays for Title Insurance varies by region of the country. Also, which party pays can also depend on whether it is a strong buyer or strong sellers market. This means that who pays for Title Insurance is negotiable, so if you feel you have leverage in the negotiation, ask the other party to pay for it.
Research Tools
First American, a large title company, offers a title fee estimator.