|
Do I need Title Insurance when I buy a home?
What is Title Insurance?
Title insurance is a guarantee from an insurance company that you have clear title to your property; subject, of course, to any liens on the property from home loans. It is not necessary to purchase title insurance when you buy a home; however, most lenders will not loan on a property that is not covered by a title insurance policy. Before you purchase your home, it might have gone through several different owners. Prior to the home’s construction, the land would more than likely have gone through several owners. It is possible that during one of the previous ownership periods there might have been a fraudulent transfer, or a document might not have been filed correctly, or drawn correctly. Title insurance covers the insured party for any loss or legal fees in defending the title to the property.
Do I need Title Insurance to purchase a home?
Most lenders require that you obtain a title policy to protect the lender from loss due to title problems. Typically owners will also purchase insurance to protect their interest in the property. There is a discount on the purchase of the owners’ and the lenders’ policies at the same time.
Sometimes cash buyers will obtain a Title Search, or an Abstract of Title and purchase a property without title insurance. Buyers who purchase a property from HUD and obtain an FHA loan are not required to obtain Title Insurance, although some lenders or buyers do require or insist on obtaining title insurance.
When does Title Insurance begin?
You purchase title insurance when you buy your home. It begins at that time, and it covers only the time period prior to the time that you owned the property. This is different most than other types of insurance that cover the future. Title insurance companies have a much better way of mitigating losses because they can research the past for defects in title and are not dependent on uncertainties of the future.
Title insurance is paid once upfront; there are not additional fees in the future.
Is the coverage always enough?
Not always. If you purchase a lot for $30,000 and obtain title insurance in that amount, you are only covered up to $30,000. If you build a home that’s worth $300,000 and there is a title problem, you would have protection for only 10% of the value of the property. Since most people borrow money on the construction of the new home, the lender will require a new policy for the value of the loan. The homeowner should require that the policy cover the value of the home and the land at the time of the structure’s completion.
Other problems to be aware of with title insurance
Title insurance does not cover problems that might arise after you purchase the insurance policy. If a neighbor builds on part of your lot, or if a contractor that builds an addition places a lien on your property even after you pay him, or if there are city or deed requirements that would cause you to lose money, you have not protection through the title insurance policy.
|
