Buying a new home is an incredibly exciting and rewarding experience. Ensuring that you legally own the rights to the property you buy is an important step to avoiding devastating news in the future. When buying your new home, you’ll come across people telling you to get title insurance – and they’re right!
Like many steps of the home buying process, grasping an understanding of title insurance can be confusing. This is one of the largest purchases of your life; don’t get held up by the many misconceptions out there:
- Title insurance offers only a little protection
- There is only one kind of title insurance
- You have to pay a monthly or annual premium with title insurance
- Title insurance is costly
- If you pay all cash, you don’t need title insurance
- Homeowner’s insurance and title insurance are the same things
- Homebuyers don’t select their title company
- You’ll never be in a circumstance where you need title insurance
To help you to better understand title insurance and why you need it, True Concept Title unwraps these (all too common) misunderstandings.
1. Title Insurance Offers Only a Little Protection
When you close on a home and the deal is done, you will receive ‘title’ to the property. This title is the legal document stating you own the property.
Long before closing on a house, you should hire a company like True Concept Title to conduct a thorough title search on the property. This will reveal the property’s history as well as expose any legal issues that could complicate your ownership.
Even after a thorough title search, hidden clouds on the title such as tax liens, false signatures, claims by ex-spouses or from wills, and other recording errors could prove to invalidate your ownership of the property months or even years down the road. Title insurance protects you in the event that any of these issues come up.
2. There is Only One Kind of Title Insurance
There are actually two types of title insurance policies:
- An owner’s policy
- A loan policy
An owner’s policy protects you against loss in the scenario that there is an undiscovered cloud on your title that impacts your legal ownership of the property.
If you are taking out a mortgage loan to purchase a property, your lender will likely require you to purchase a loan policy. This protects the lender’s investment in the property until the mortgage loan is paid off, but this does not provide any protection for you as the homeowner.
3. You Have to Pay a Monthly or Annual Premium with Title Insurance
Although many other kinds of insurance require you to pay a monthly or annual premium, this is thankfully not the case with title insurance. Title insurance is a one-time payment that you cover when closing on your home or refinancing.
4. Title Insurance is Costly
Title insurance is a one-time premium cost of approximately .5-1% of the price of your home, but it is a small percentage of your overall closing costs and a nominal amount in the shadow of potential looming costs that could arise from hidden liens and record errors.
The benefits of title insurance dramatically outweigh the cost, so you shouldn’t let a few extra thousand dollars prevent you from investing in this pivotal insurance.
5. If You Pay All Cash, You Don’t Need Title Insurance
Not necessarily... While paying all cash may eliminate the need for a loan policy, you still aren’t free from the risks of hidden clouds on your title. Purchasing an owner’s policy is necessary to protect you against defects on the title of your home.
6. Homeowner’s Insurance and Title Insurance are the Same Things
Homeowner’s insurance is essential to protect your home against loss or damage that could affect your home as a result of accidents, bad weather, and more. However, it doesn’t protect your legal right to a property or your lender in the event that the mortgage is not paid off. You must have homeowner’s insurance and title insurance for the best protection.
7. Homeowners Don’t Select Their Title Company
You have a choice in title. The home buyer can choose the title company when purchasing a home.
In some cases, the seller may be required to pay for the owners and loan policies for the buyer, in which case the buyer may not be able to select the company.
8. You’ll Never Be in a Circumstance Where You Need Title Insurance
In 2020, the title insurance industry paid $470 million in claims while defending the rights of policyholders. While it’s reasonably unlikely that a thorough title search will miss any clouds on your title, it does happen.
And the outcome isn’t pretty. Trust us when we say that avoiding the cost of title insurance is not worth the potential cost of not having it.
Clear Things Up with True Concept Title
With so many misconceptions surrounding title insurance, we want to help clear the air so you feel confident in your purchase.
When you’re buying a home, especially if it’s your first or you’re investing in a real estate-owned (REO) property, it’s important to thoroughly investigate every step of the process and find a team you can trust and rely on. At True Concept Title, our mission is to provide you with just that – a team of reliable and trustworthy title & escrow experts who will protect your property purchase.
Whatever you take away from this article, remember: you have a choice in title. Contact our national title insurance specialists today to start the process – (813)-263-7168.