What is title insurance?…And why do I need it?

Title insurance protects buyers and mortgage lenders against defects or problems with a title when there is a transfer or property ownership. Simply put, the title must be clean, meaning that the seller really does own the property and is free to sell it.

The insurance is issued in two parts. First, the title company or attorney researches records to ensure there are no undisclosed heirs to the property, unpaid taxes, pending legal action, errors, fraud, or other problems with the deed. Next, the title company contracts with an underwriting company to issue an insurance policy that will pay for your defense should anyone challenge your title, and compensate you for your equity if you lose

Homebuyers  typically need two title insurance policies: an owner’s policy and a lender’s policy, which protects the lender. Lenders require you to pay for lender’s title insurance as a part of your mortgage closing costs.

Here are 3 questions to ask when selecting your title insurance:

1. Are title insurance prices regulated?

In many states, the insurance prices are regulated, so there won’t be much of a price difference. Even if prices are regulated, expenses such as wire transfer fees or courier fees can add up, so ask about the complete transaction price, not just insurance costs. Be sure to look  into the quality of the insurance and the quality of the title search. The goal should be to find a title company or attorney that will do a thorough search, and an underwriter that will still be around in 10-15 years if there is a problem.

2. How much coverage do I need?

Owner’s policies typically protect against a number of contingencies, such as fraud, forgery, undisclosed heirs and spousal claims. Additional coverage could boost the cost. So if your lender requires additional insurance because you, let’s say, have an adjustable-rate-mortgage (ARM), that would guarantee that the lender is first in line for repayment if the home goes into foreclosure, that will likely cost you more.

3. Who usually pays for title insurance?

This can vary state to state, and sometimes even county to county. In Maryland, the buyer typically pays for the title search, insurance and settlement. If you’re buying the owner’s and lender’s policies from the same company, in many cases there can be a substantial discount.

If you’re in the market for a new home in Central Maryland, we should connect. Working with a trusted professional DOES make a difference.