Homebuyers often feel overwhelmed by the high number of tasks that must be completed prior to closing, but there’s one step in particular that homebuyers cannot afford to overlook: securing title insurance. Title issues arise more often that you might think, and title insurance protects you against costly legal disputes over whether you truly own your home, free and clear.
Although even conscientious homebuyers may not immediately see the need for title insurance, unforeseeable issues may arise and result in an expensive legal challenge to your title:
These are just a few common examples of title disputes that may arise after you have already purchased your property. Even a thorough title search may fail to identify these issues prior to closing; title insurance is designed to protect you from exactly these types of unforeseeable disputes.
There are two common types of title insurance: a lender’s policy and an owner’s policy. Homebuyers should be familiar with both types of insurance.
If you are taking out a mortgage loan to purchase your home, your lender will likely require you to buy a lender’s title insurance policy to protect the lender from the types of risks discussed above. These policies provide coverage for the lender’s legal defense costs in a title dispute, and they often insure the lender, up to the amount of the mortgage loan, against missed payments caused by title disputes.
An owner’s policy provides you with similar protection. While a lender’s policy insures the amount of the mortgage loan against title problems, an owner’s policy protects your down payment and interest in the property as well. An owner’s policy would also cover your legal fees in a title dispute.
Given that most lenders require a homebuyer to purchase a lender’s title insurance policy, buyers will often only have to decide whether to purchase an owner’s policy on top of the lender’s policy. Thankfully, if you purchase both types of title insurance at the same time, the owner’s policy is typically inexpensive, often around 0.5% of a home’s purchase price. Given that a home is often a homebuyer’s largest investment, that is a minimal price to pay for the peace of mind that comes with knowing that you are insured against legal challenges to your ownership rights.