Friday, September 18, 2015

Why Do You Have To Buy Title Insurance When You Buy a Home?

Title insurance is there so if anything is wrong with the title to that new home you just purchased, like a tax lien, relatives or spouses of ex-owners claiming ownership, errors in property line surveys or even right of ways and easements, you will be compensated if you are damaged due to situations like these.

Title insurance is predominately found in the USA and is meant to protect a property owner from property title defects.

It also protects your lender who owns the mortgage on your home.

The Need for Title Insurance

Interestingly enough, even though the title has been researched and is most likely not going to contain any errors, you have to pay the full premium when you buy your home.

Even if you bought a home and sold it one day later, the new buyer would have to pay the full title insurance premium all over again. It is the nature of the beast.

There are two types of title insurance policies; a loan policy and a buyer policy. 

Believe it or not, in most states a buyer’s policy is optional.

Most likely if you have a mortgage on your home and a title defect does arise, your lender and the title insurer will take care of the problem, so please don’t panic if you look and find out that you don’t have a buyer’s policy, as in many states a buyer’s policy is optional.

With buyer’s policies there are two types generally, basic and premium.

What’s the difference? Basic typically covers the full purchase price of your home. I do believe most policies start out insuring a property with a value of up to $500,000.

A premium policy will increase as your home appreciates in value. An example would be, you bought a home for $498,000. You find out a few years later that your home is now worth $600,000.

Your basic policy would cover you up to $500,000. A premium policy would cover you up to the $600k.

Title Insurance Explained Visually

While most people don’t even know why they have to buy a lender’s title policy, did you know that most of the money spent on a title policy, goes as a commission to the title company?

Always find out the title policy rules, laws and guidelines for your city and state before you purchase that home.

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