Title Insurance: What Is It and Why Do You Need It On Your Home?

Businessman signing contract in office

For many Americans owning a home is the largest asset in their net worth. Although the concept of home ownership is not complicated, in reality, complications can arise with ownership. Title insurance is a policy that protects an owner or the lender if claims arise on outstanding mortgages, unpaid real estate taxes, or liens on the property. Typically title insurance is mandatory for homeowners. In essence, title insurance protects against a financial loss related to the ownership of a property.

Is Title Insurance Really Necessary?

A home is a great investment, but a home is also more than just an investment. There is an emotional aspect of home ownership, including a sense of identity. About 30 percent of title searches uncover issues that may affect a buyer’s property ownership right. Home ownership is too important a step in life to forgo the title insurance process.

Know the Steps in the Title Insurance Process

The primary purpose of title insurance is to protect your ownership in your home. Professionals begin the process with an examination of relevant documents, including an in depth search of public documents. This is called the title search. These searches delve into many different areas, such as liens, taxes, land surveys and zoning. The aim of the process is to identify issues including unreleased mortgages, tax judgements, pending bankruptcy or divorce proceedings.

Finding Solutions

As previously stated, about thirty percent of title searches find an issue that must be addressed in order to protect the home buyer. Because there are many ways that home ownership can be challenged, it is important to thoroughly cover any potential pitfalls. The title professionals work extensively to fix any problems that arise or they insure against the risk.

Types of Title Insurance

When the research is done and any issues remedied, the property’s title can be insured. There are two categories of residential title insurance. The first is Owner’s Policy, where a home buyer pays a premium for the insurance at closing. The owner is then protected from title risks as long as the person owns the home. A second type of residential title insurance is Loan Policy, which is required by lenders in case there is a problem with the title in the future. The Loan Policy covers the property loan amount.

What are Settlement Services?

Title professionals will also work to close the settlement of the real estate transaction. Some steps in this process are reviewing contracts, coordinating property inspections, and finalizing and submitting documents for public record.

If you want to move quickly through a real estate transaction and still have peace of mind, then be sure to select a reputable title company. Banks can issue title insurance, but it may be better to hire an experienced attorney. The cost is the same. An attorney may be better positions to answer questions about the specific terms of a policy or interpret rules on what use a property can have. In any case, the buying and selling of real estate is too important an endeavor to be lax about title insurance. 

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