Title insurance is a seemingly mysterious component of real estate transactions, often overshadowed by the excitement of finding the perfect home or the intricacies of mortgage rates. Yet, it is crucial in protecting one of the most significant investments in a person’s life—property. In this article, we embark on a myth-busting journey to demystify title insurance and the misconceptions surrounding it.
Myth #1: Title Insurance is seriously “over-priced.”
For title insurance, a homebuyer only needs to pay a one-time fee at closing, which is about .5% of the purchase price of a home.
Understanding the difference between an owner’s title insurance policy and a lender’s policy is critical. A lender’s policy protects against claims that may affect the lender’s loan and does not protect the owner’s property rights, so title professionals recommend that consumers purchase an owner’s policy to protect one of life’s most significant investments.
Without title insurance, homeowners are not protected from a devastating financial loss – sometimes in the tens of thousands of dollars – that may result from a title defect, a tax lien, an undisclosed easement, fraud, or forgery. If a legal dispute arises, title insurance also covers legal fees and court costs to defend a consumer’s property rights. Title companies will fight for homeowners to stay in their homes for no additional charge.
Myth #2: The home is brand new, so I don’t need it
Even if the home is brand new, the land it sits on is not. Many people have owned the land over the years, and no matter the age of the home, issues could still arise.
Owning a new home comes with issues, such as easements, restrictions, HOA liens, mechanic’s liens, and other things that could affect ownership interest and use of property.
Myth #3: Paying cash for a home or paying off the mortgage removes the need for Title Insurance
Because you are often required to buy a title insurance policy for your lender when you purchase a home, you may feel that once the mortgage is gone—or if you never get one—you do not need to worry about title insurance. However, the reality is that even years after the mortgage is paid off, an issue could arise with your home’s title. Whether or not you have a mortgage is irrelevant; if previous liens or other problems with the property were not discovered, you will still be responsible for them if you do not have title insurance when they are found.
Myth #4: You get the same protection from homeowners and title insurance
Title insurance protects a buyer’s right to ownership and a lender’s investment. On the other hand, homeowner’s insurance is a policy that protects you against potential losses or damage you can experience to the structure of your home or its contents during an insurable incident.