What is Title Insurance?

Title insurance can give you piece of mind when purchasing a home or piece of property. But what is title insurance, and why is it so important?

Title insurance
There are two types of title insurance: title insurance for lenders and title insurance for buyers. Lenders take out title insurance against the value of the property or home's mortgage as part of the whole process of buying a home. A lenders' policy protects only a mortgage.

However, you can get buyers' title insurance to cover the full value purchase price of the property or that will help you with any legal expenses that you might incur when fighting other claims in court. Buying this kind of insurance is a one-time fee that will cover you until you sell your home and can usually be included in your closing costs.

A general title search will only inform you of claims against a piece of property or house that are in public records. It will not tell you if there are errors in the information recorded or of all of the possible parties that might have a claim on your property. Hidden problems might include forgery, the most common type of defect, or signatures on legal documents from minors.

Title insurance is not designed to replace title searches. Title insurance is designed to give you assurance that you will be financially protected from any claims that were made against your property or home before you took title.

Title insurance tips

• You can ask the seller to pay for your lender's title insurance as part of the closing costs.
• You can shop around to get the best overall title insurance rates.
• State laws about title insurance vary. Check on what your rights are in the state in which you live.
• If you are refinancing your home, look into "reissue credit." This will keep your title insurance costs down.
• You may be able to get a reissue rate if the property or house that you are buying changed hands within a couple of years of your purchase.
• Title problems can arise on newly built homes if there were liens against the property or a contractor did not pay subcontractors.
• Make sure that you read your buyers' policy for exceptions. Buying a policy with exceptions might be a waste of money.
• Ask if a discount rate is available if you are buying lenders' and buyers' title insurance from the same organization.
• You do not have to use the insurance company that your real estate agent recommends.

Buying title insurance
While claims against title insurance are low in comparison to claims against other types of insurance, title insurance can buy you peace of mind. Remember, claims can show up after you have closed on your property and missing these claims is not necessarily the fault of the company that did the title search.

Only you can make the decision as to whether buying title insurance makes sense for you.