If there is a loan involved when you go to settlement on your new home, there will be an inch thick pile of paperwork for you to sign. One of these documents is for title insurance and you will be asked if you want to purchase it. You are probably familiar with home owner’s insurance, but may be asking yourself what the neck it title insurance. Let me explain.
What Is Title Insurance
When you buy a home, you “take title” to it in order to establish legal ownership. Title insurance protects mortgage lenders and home buyers from financial loss and related legal expenses created by defects on the title from a previous owner. A defect or impairment on a title can be a lien, mortgage, judgment or an error in recordation that prevents you from taking ownership of the home. This may sound bizarre but it happens more than you might think.
The title company involved in your closing will conduct a title search at the court house, checking the property’s ownership history, to determine there is a “clear title” with no defects. “Clear title” means the current owner, who is selling to you, has a complete ownership stake in the property, without any legal claims against it.
Examples of title defects could be the release of a previous owner’s mortgage was never recorded and that lien is still on the property. There could be a pending lawsuit or judgement or there could be taxes due. Liens from contractors or fraudulent claims are also a possibility. In the event of something like this happening, the title company will have to research previous owners and settlement agents and acquire the proper paperwork for the release to be recorded before you are able to take title. The title must be cleared and any discrepancies resolved before you can purchase the home.
Lender’s vs. Owner’s Title Insurance
Your mortgage lender will require you purchase a lender’s title insurance policy which covers there investment against any title issues that pop up at closing. Your lender has a lot of skin in the game and wants protection. However, owner’s title insurance, insurance that protects you from title issues, is optional. It is also highly recommended.
Do I Need Owner’s Title Insurance?
You receive a ‘warranty deed’ from the seller when you purchase a home. The seller is saying, “I own this property free and clear and am transferring it free of any liens or defects”. Sounds great, right? You are now the proud owners of your dream home but you are also owner of any unknown defects. For example, you decide to sell the home and are ready to close. When the title search is done, a previous unknown defect is discovered and you are now responsible for clearing that defect. This could cost thousands of dollars and delay the closing until the defect is resolved.
As with any insurance, you will most likely never have to use it. It comes down to a matter of peace of mind and being safe rather than sorry.
Cost of Owner’s Title Insurance
The good news is the cost of lender’s and owner’s title insurance is a one-time fee. You pay at closing and you’re done. No monthly premiums to contend with. Iowa’s state-run title insurance agency, Iowa Title Guaranty, provides a flat rate of $110 for mortgages up to $500,000 and an additional $1 per thousand over $500,000, which is a minimal cost for the amount of protection provided.
Realtor Jane Fisher and Associates https://www.janefischer.com/ are here to help you navigate your way through every step of the home buying process. Give them a call today, 641-424-HOME (4663).