The Guide to Title Insurance
Getting title insurance is a key step in the homebuying process. Here's what you need to know.
The Consumer Financial Protection Bureau recommends you shop for title services like you would a real estate agent or general contractor.(Getty Images)
Your offer on a home has been accepted, and you’re ready to start preparing for closing. Especially if this is your first home purchase, the list of things you need to do next may seem endless, from submitting the final paperwork for your mortgage application to scheduling the inspection. The bit that baffles you most may be getting title insurance, but it’s a necessary step in nearly every real estate transaction.
Here’s what you need to know about title insurance:
Title insurance is meant to protect a property owner or lender from financial loss when there are additional claims to the property. When a person intends to buy a home, for example, he or she will purchase a title insurance policy and pay for a title search. At this point, the title insurance company will conduct detailed searches of public record. This could turn up undisclosed liens on the house, a forged deed from a relative of a deceased owner or other issues that could pose a threat to your ability to buy the home without paying additional parties.
“When a title agent or underwriter uncovers a ‘defect’ on the title, the defect is disclosed and very often remedial action is taken to clear the problem,” Robert Treuber, executive vice president of the New York State Land Title Association, wrote in an email. “This may require further research in public records, contacting prior owners or the settling of liens and outstanding obligations.”
In many states, the title insurance representative will also oversee the settlement, or closing, of the real estate transaction, Treuber explains. In other cases, like in New York, a real estate attorney is often in charge of closing rather than the title company.
When you're buying a home, there are two types of title insurance policies:
- Owner’s policy. This protects the homebuyer from financial responsibility or related legal fees should there be another ownership claim on the property.
- Loan policy. This protects the lender that is providing financing for the buyer from financial responsibility or related legal fees should there be another ownership claim on the property.
In the case of a loan policy for title insurance, “it only protects the lender’s interest in the property should a problem with the title arise. It does not protect the buyer,” Treuber says.
Many lenders require borrowers to purchase a loan policy for title insurance as part of the conditions of the mortgage. To protect yourself as the homeowner, you’ll want to consider purchasing an owner’s policy separately (though you’re typically able to do so with the same title insurance company) to protect your own finances should an issue arise.
The cost you’ll pay for title insurance depends on where you live and price you’re paying for your new home. Realtor.com reports the average title insurance policy is about $1,000, though it’s easy to see that number climb significantly depending on the details of your home purchase. Title insurance company First American Financial Corporation has an online calculator for estimating your title fees – for example, it estimates that title fees for a $400,000 house in Denver County, Colorado, with a 10% down payment would total around $2,252.
The best part about title insurance, however, is that unlike homeowners insurance, you don't pay it monthly. “The policy is paid for one time and endures for as long as the policy holder has an interest in the property,” Treuber says.
Many real estate agents work closely with specific title insurance companies and should have recommendations once your offer on a home is accepted by the seller. Your agent may have the right connections, but it’s always a good idea to shop around and compare rates. Like First American, many title insurance companies offer online calculators, but you can also inquire further to get a more accurate quote for your situation.
When you receive your loan estimate – a required form that's issued to you by your lender and explains the details of your loan – you’re at the right point of the transaction to start shopping around for title insurance.
The Consumer Financial Protection Bureau advises you shop for title services much in the same way that you would a real estate agent or general contractor: Ask friends and family who have recently purchased a home for recommendations.
Contact more than one title insurance company to ask for a quote on the total price you’d be expected to pay, as well as for references that you can follow up with.
When you purchase title insurance, you’ll typically purchase the title search at the same time. In states where the title company also serves as the closing agent, this service will be purchased at the same time, often bundled together in what appears to you as a single price. You’ll also want to decide if you’ll be purchasing an owner’s policy in addition to the loan policy to protect you and your lender if there is a separate claim to the property at some point.
Move forward with the company that's the best fit and offers a price that works for you, a good reputation that doesn’t raise red flags and appears amenable to answering any questions you may have about the title search and closing process.
In selecting a title insurance company, consider factoring in how the company has been able to adapt to changing circumstances, like the COVID-19 pandemic. While the global pandemic has altered how many industries have done business, real estate closings have had to adjust to ensure the health and safety of all parties involved.
Kathy Kwak, executive vice president of title and escrow operations and counsel for Proper Title LLC, a title insurance company based in the Chicago area, explains that in-person closings have largely become drive-thru closings. In some cases, remote online notarization is needed for people who cannot be in the same room together to sign a document.
“It’s been somewhat challenging, but we’ve definitely worked around it,” Kwak says.
Kwak expects the measures taken as a result of the COVID-19 pandemic to last at least through the end of the year, and likely beyond that.