What You Need to Know About Title Insurance
Among the several items you will encounter in closing costs during the home buying process is title insurance. Many people try to save all they can in closing costs and may ask to eliminate this item. Most lenders require this insurance when you purchase real estate, but title insurance for the buyer is optional.
Here’s what you need to know about title insurance and how it protects you and the lender.
What is Title Insurance?
“Title insurance is a policy that covers third-party claims on a property that don’t show up in the initial title search and arise after a real estate closing.” This insurance protects you and the lender from financial loss in the event a problem arises with the title to your real estate after closing. This can even happen years after you purchase your home.
Before the closing date, your mortgage lender will contract a title company to perform a title search. This is a public records search that seeks to discover any liens, easements, or encumbrances that could prevent you from buying the home. If any third party (unknown heir, contractor, tax authority, lender, etc.) has an issue against the title, it cannot be bought or sold until the issue is cleared.
- Problems that can arise and tie up a title during closing can include:
- An unknown heir that was left the home in a will, but wasn’t previously discovered
- An unpaid property tax bill; the tax authority can place a lien against the property
- A contractor can place a lien if they claim an unpaid bill for renovations or repairs
- An easement for access by a utility company can restrict how the property is used
- Zoning ordinances that prevent certain uses of the property
- Restrictive covenants by homeowners associations
Sometimes these issues do not come to light, for various reasons, until after the home has been purchased. What happens to these claims then? They do not simply go away. Title insurance protects you and the lender against surprises like these that could cost you a great deal of money.
What Does Title Insurance Cover?
The two types of title insurance protect both parties at risk in the home buying process: the lender and you, the buyer. One is generally required; the other is optional.
If a dispute arises after loan closing, title insurance protects the lender and you (if you purchased buyer title insurance) and provides for legal fees or other expenses required to settle the problem.
For example, it comes to light after closing that the state has a property tax lien against your newly purchased home. Title insurance would cover the legal fees and the unpaid tax bill. Or, if a neighbor claims a disputed easement against your property after the loan closing, title insurance would cover the legal fees to settle the matter.
Lender Title Insurance
Title insurance for the lender protects them against claims that could arise against the real estate they have loaned money against. It is typically required by the lender to cover their risk. The lender is covered for up to the loan amount until the mortgage loan is paid in full. Then, since their risk ends, so does their protection.
Buyer Title Insurance
Title insurance for the buyer is optional, but as a one-time expense at closing, it can certainly be worth the cost. Even the most diligent title company can make honest mistakes, and unknown circumstances can arise. Buyer title insurance protects you for as long as you own the property.
Get the Help You Need During the Home Buying Process
Don’t be left wondering about the home buying process. Jeff Cook Real Estate can provide all the guidance, information, and advice you need when seeking to buy a home in South Carolina. Contact us today to connect with a licensed real estate agent with the skills and tools to make buying a new home a pleasure!