Everything you need to know about title insurance — what it is, what it covers, how it works, and why it protects one of the biggest investments you'll ever make.
When purchasing a home, it's essential to verify the seller's rightful ownership and ensure there are no unresolved issues that could impede the transfer of the title to you.
Why is this important? Problems with the title can impose limitations on property usage and potentially lead to financial losses. This is where title insurance becomes invaluable, and Taylormade Title is here to assist you. We conduct thorough title searches to confirm that your ownership is clear of any encumbrances.
The cost of title insurance is paid only once, with no renewal premiums or expiration dates. This protection endures for as long as you, or your successors, hold an interest in the property — ensuring long-term security.
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Title Insurance 101
When you take out a mortgage, one part of your closing costs will be title insurance. The premium is a one-time charge, and the policy protects the lender. You also can purchase owner's title insurance to protect yourself, but it's not required.
Here's what you need to know about title insurance: what it covers, how much it costs, and whether you should buy it.
Title insurance is a policy that covers third-party claims on a property that don't show up in the initial title search and arise after a real estate closing. A third party is someone other than the property's owner, such as a construction company that didn't get paid for its work on the home under a previous owner. The term "title" refers to someone's legal ownership of the property.
A title claim could arise at any time, even after you've owned the property with no problems for many years. How could this happen? Someone else might have ownership rights that you don't know about when you make an offer to buy a property. Even the current owner might not be aware that someone else has a claim on the property. In the case of an overlooked heir, even the person who has those rights might not know they have them.
Before your home loan closes, your mortgage lender will order a title search from a title company. The title company searches public records related to your home to try to find any title defects that could affect the lender's or buyer's property rights, such as:
Liens can get placed on the property by a contractor, tax authority or lender who hasn't been paid. You don't want to get stuck paying a previous owner's unpaid bills.
Easements are someone else's right to use your property even though you are the owner — for example, utility lines in your backyard. An easement could limit your ability to use your property however you want.
Encumbrances include liens ("financial encumbrances") and easements, but also zoning laws, restrictive covenants imposed by homeowners associations, and leaseholder rights.
A title company searches public records including deeds, mortgages, divorce decrees, court judgments, tax records and child support orders.
If the title search reveals any problems (also called "clouds"), the title company will try to resolve them. In some cases, your real estate agent will need to work with the seller's agent to get the seller to resolve the problem. In other cases, the problem may be significant enough to derail the sale.
A title insurance policy covers underlying issues with a property's title that might have been missed before you bought the home. It comes in handy if the public record search failed to catch any liens or ownership disputes.
Title insurance doesn't protect homeowners against all possible infringements on their property rights. For example, it doesn't protect you against title problems caused by your own actions, such as:
In short, it doesn't protect against issues newly created after you buy the property. It protects against issues that might have affected your decision to purchase the property had you known about them at the time.
Cost & Coverage
An owner's title insurance policy can cover the costs of paying off a previously undiscovered lien or defending against a lawsuit filed against you by someone claiming a right to the property. It can also provide a cash settlement to a new owner who unwittingly purchases a property with a forged deed. It protects your ability to sell the home one day if a problem turns up during a later title search.
You're probably less concerned about how a lender's policy works since it doesn't protect you — but you might still be curious, as you're being asked to pay for it. If you lose your home because the property was sold to you fraudulently, the lender will file a claim with its title insurance company to recoup the mortgage payments it was expecting from you. Under other circumstances the lender could foreclose to recoup its losses — but if someone else has a right to the home, foreclosure isn't an option.
Title insurance is a one-time, up-front fee — not an ongoing expense. An owner's policy is based on the home's purchase price, while a lender's policy is based on the loan amount. Both policies together usually cost about 0.5% to 1.0% of the home's purchase price, or $1,500 to $3,000 on a $300,000 home, according to ALTA.
In North and South Carolina, the price for title insurance is the same no matter which title insurance company you use. However, it's important to make sure you're using a reputable company with experienced underwriters. You can get an estimate of what title insurance costs in your area using the rate calculator.
Open Rate CalculatorThe buyer pays for the lender's title insurance policy as part of their closing costs. Either the buyer or seller can pay for the owner's policy on behalf of the buyer. Local real estate custom often determines who pays.
Buying an owner's policy at the same time as a lender's policy can reduce the cost of the owner's policy through what's called a "simultaneous issue charge."
Buying or selling in the Carolinas? We'll make your closing easy — with clear title, great communication, and service available nights and weekends.