6 min read

What is title insurance?

A home isn’t just where you hang your hat; it’s a huge financial investment that needs protection. Home title insurance is part of the closing process ensuring you have an undisputed claim on your house. It shields mortgage lenders and homeowners from losses if property ownership comes into question. We’ll go over why it matters and how title insurance helps you mark your territory during the home-buying process.

Definition of title insurance

What is home title insurance? It’sa policy that protects lenders and homeowners from financial costs if property rights are challenged due to past issues like public record errors or fraudulent documents. Don’t confuse it with the equally important homeowners insurance, which covers future damages to the property.

Importance of title insurance

Property title insurance is an essential piece of the underwriting process and the homeownership paper trail, protecting your claim on the property. If there are errors or fraudulent documents lurking in the archives, they can pose serious risks to the latest owners. Individuals or agencies can challenge your ownership if there are undiscovered liens, fraudulent paperwork or conflicting property claims.  

Title insurance in action

Let’s say you discover a lien on your home because the previous owner didn’t pay off their mortgage, or a mysterious heir contests your property claims. Title insurance can offer protection in many situations, reducing the financial burden of defending your property rights.

Types of title insurance

There are two types of title insurance: one that protects the lender and one that protects the owner. Keep in mind that these are separate policies and not a two-for-one special.  

Owner’s title insurance 

This protects the keys to your castle against ownership claims, unknown liens or legal disputes. While this coverage isn’t necessarily required, it’s highly recommended to ensure your peace of mind and financial security. Wondering who pays for owner’s title insurance? Typically, it’s the buyer’s responsibility during closing costs. 

Pro Tip

When negotiating terms of the sale, the buyer and seller can come to an agreement that requires the seller to cover title insurance. When you’re talking terms, this option can help you trim the fat off closing costs.

Lender’s title insurance 

The lender also wants to protect their interest in the property when you assume the loan, ensuring the mortgage is valid. Most mortgage lenders require this coverage as a condition of every home loan, making it a standard part of the real estate transaction. Depending on the circumstances, the cost of lender’s title insurance can fall on the home buyer or the lender.

Common title issues covered

  • Errors in public records like misspelled names or incorrect legal descriptions 
  • Unknown liens from unpaid debts by former owners 
  • Forgery or fraud in title documents 
  • Undisclosed heirs claiming ownership 
  • Boundary disputes with neighbors

Cost of title insurance

Title insurance is usually a one-time premium payment made at closing, not part of monthly mortgage payments. According to Fannie Mae, the average cost is 0.42% of the purchase price, varying by state. This one-time fee defends your ownership for as long as you own the property.

Did you know that title insurance typically costs:
  • 0.5%–1.0%of home purchase price

How to obtain title insurance

You know you need title insurance, but how do you lock it down? Luckily, it’s a fairly easy step in the closing document process.  

  • Step 1: Choose a reputable title insurance company. Do your research and pick a company with a reputation for keeping homeowners happy. 
  • Step 2: The company performs a title search to detect issues. This top-to-bottom deep dive helps identify potential problems with the title before the policy is issued.  
  • Step 3: The policy is issued once you close on the home. After the title search is complete and any issues are resolved, the policy takes effect.

Choosing a title insurance provider

Need help finding a title insurance company? Don’t sweat it.

FACTORS TO CONSIDERTOP NATIONAL PROVIDERS
Company reputationFirst American Title
PricingFidelity National Title
Customer serviceOld Republic Title
Lender recommendations

Title insurance FAQs

  • Home title insurance acts as your financial shield against legal disputes over property ownership. It ensures that you’re the rightful owner of the property and helps clean up messes that can bubble up from past ownership issues like paperwork errors, liens or fraudulent documentation.

  • Home title insurance typically covers you for issues like title defects, forged documents, undisclosed heirs and legal fees associated with defending your ownership rights.

  • Title insurance is a one-time payment made at closing, usually ranging from 0.5% to 1.0% of the home's purchase price. According to Fannie Mae, the average cost is about 0.42% of the home's value. The exact amount will vary based on the property's value and location.

  • The responsibility to pay for title insurance can vary depending on state laws and terms of sale. In some states, the seller is required to cover the cost, while in others, it’s the buyer's responsibility. This can also be negotiated as part of the purchase agreement, so it’s important to explore all your options and understand the specific requirements in your area.

  • Owner’s title insurance shields the home buyer from ownership disputes, while lender’s title insurance safeguards the mortgage lender’s interest in the property. These are different policies and would only provide payouts to the respective policyholder, either the owner or the lender.

Need some clarity on title insurance?We can help you get the answers you need.

Peek behind the curtains of the mortgage process

Still have burning questions? We've got you covered with a host of in-depth articles on every step.