Title insurance protects a homebuyer or lender in the event that someone else has an interest in the property (that is, some sort of legal or financial claim on the property — not that they just found the house “interesting”).
If you buy a home and only find out later that a third party had a lien (i.e. legal claim to your property to secure a debt, such as mortgage) or an easement (right to use your land), you could end up stuck with those terms. Title insurance protects against these and other issues that may not come up at the time you’re closing on the property.
Title insurance comes in two main varieties: lender’s policies and owner’s policies.
As the name suggests, the lender’s policy only covers the party lending money toward the purchase of the property (typically a bank). Lenders usually require buyers to purchase a lender’s title insurance policy. After all, if a bank loans you money to buy your home, it makes sense that they’d want to secure and protect their monetary interest against potential problems with the title.
Owner’s policies protect the person buying the home. These generally aren’t required for a sale to go through because the seller or the lender wouldn’t be affected if you end up responsible for title issues on your property. Still, lots of homebuyers choose to get an owner’s policy for added protection and peace of mind.
Factors that affect how much your title insurance policy will cost include:
First, keep in mind that states handle title insurance differently. In three states, Florida, New Mexico, and Texas, the state insurance department sets the premium rates that title insurers can charge. In other states, title insurance companies have more flexibility to set and alter their rates. Even in states where premium rates are set, insurers may set different additional fees that you can compare or negotiate.
Generally, you’ll see title insurance rates in the form of “rate per thousand.” That’s because title insurance policy premiums are based on the value of your home. It’s also common for insurance companies to set premiums on a tiered basis.
For example, if you buy a $300,000 home, the rate per thousand might be $5.75 for the first $100,000 and $5.00 after that, making your premium $1,575.
Another factor is the type of transaction you’re undertaking. When you buy your home, you might consider purchasing a lender’s policy and an owner’s policy. If you choose to buy an owner’s policy, it’s usually less expensive to buy both policies (lender’s and owner’s) through the same provider, rather than purchasing both separately.
If you refinance your home (meaning you settle your current mortgage and open a new lending agreement), you’ll need to purchase another lender’s policy because the lender in the new refinance agreement will want to be covered. But your owner’s policy typically continues as long as you or your heirs hold an interest in the home, so you wouldn’t need to purchase an additional owner’s policy.
You can generally expect to pay anywhere from a few hundred to $2,000 for title insurance, according to the National Association of Independent Land Title Agents. The average cost of a lender’s and owner’s title insurance policy comes to $1,374 for a house priced at the national median value of $200,000.
If you live in a state that lets insurers set their own rates (that is, most of the country), you may find that quotes vary by hundreds of dollars. It’s a good idea to compare a few options to get the coverage you and your lender need without adding too much to your closing costs.
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