What is Title Insurance?
Buying a house is not an easy task. There are a lot of steps, paperwork, and regulations that must be followed from start to finish. Few homebuyers know about these regulations and how they fit together. One of the most important steps involved with buying a house is the purchase of title insurance.
Before you claim the ownership of the property, you must have the title of the property transferred to you. Getting the title is another process that could turn ugly due to title disputes associated with the property. In the end, there are chances that the buyer might not keep the house if the tile is not cleared later on.
For example, if the seller does not have 100% legal ownership of the property, another titleholder can file a legal claim against the new owner. Or a contractor who was not fully paid by the previous owner can raise an alarm.
Whatever the reason, the new owner must deal with legal and financial consequences associated the property.
So, how can you protect your investment in this case?
This is where the title insurance comes in.
This insurance will protect you if something comes up after the sale is closed. As noted by Redfin, the title insurance will compensate you the amount you lost on the house and can help you recover some expenditures associated with the claim.
This insurance also protects money lenders. For example, if you financed the house using a mortgage, the title insurance will protect your lender after closing the sale.
Types of title insurance policies
A noted by First American, there are two types of title insurance policies: (1) Owner’s title insurance and (2) lender’s title insurance.
- Owner’s title insurance policy: When you buy a house, there are chances that a third party will file a claim against the property. You can protect against these claims by purchasing title insurance. As noted by the Consumer Financial Protection Bureau(CFPB), the owner’s title insurance will protect the owner if someone files a claim against the property for something that happened prior to the sale. These claims could be related to unpaid taxes or contractors who were not fully paid for the job they did before the sale.
- Lender’s title insurance policy: This insurance protects the lender for the amount they lent the buyer of the house, according to CFPB. Lenders require borrowers to purchase this insurance for maximum protection of their capital in the property.
How to save money on title insurance?
Protecting your capital and lenders’ money is very important. However, spending a fortune just to protect your money is not financially viable. How can you be able to protect your investment with the smallest amount possible?
The following are some of the ways you can use to minimize your insurance expenses.
- Shop around: Just like other insurances, shopping around is the best way to get the best rates. That is you will need to compared multiple quotes and choose the one that fits your financial needs.
- Bundle your insurances: Insurance providers are having trouble acquiring and retaining new clients due to competition. To win the competition, some lenders offer discounts to people who purchase multiple coverages from the same lender. For example, you could use the same provider for both lender’s and owner’s title insurances to same money.
- Ask if you qualify for discounts: It does not hurt to ask your provider if you qualify for discounts. For example, you could qualify for a first time home buyer discount, student discount, excellent credit score discount, etc. You never know until you ask.
