When you’re preparing to purchase a home, your mortgage lender may require you to purchase title insurance. The reason lenders ask borrowers to purchase these policies is because they don’t want any legal and financial claims on the property that become known after the sale is finalized to cause lengthy ownership legal battles over the property.
Although you might not think that you need title insurance for your future condo, purchasing a condo is just as much as a financial commitment as purchasing a home, and you need to take steps to protect yourself. While the title insurance policy mortgage lenders will ask you to purchase protects their financial interests, it can also be a good idea to get an owner’s title insurance policy, as well.
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How Does Title Insurance Work?
When a home is getting ready to be sold, a title company will be hired to examine public records and search for any evidence that the home can be sold without any legal complications. If the company discovers that there is a lien on the home or any other issues, they will notify the potential buyer and/or lender, so they know not to proceed with the purchase.
Both lender and owner’s title insurance policies can be purchased, and they offer protection to either your lender or you, the potential buyer of the property, in the event that your title company misses or overlooks something during the title search process.
Usually, your lender will make the cost of the lender’s title insurance part of the closing cost on the home purchase, however, a policy for owner’s title insurance can either be paid for by you or by the seller. This is something that you can include during the negotiations of the sale if you want to reduce your closing costs.
Why Should You Consider Title Insurance?
Sometimes, issues with the sale are missed. Although this is a rare occurrence, the financial costs associated with these problems are significant, making the cost of title insurance relatively inexpensive and worth it in comparison to the potential losses you and your lender could face.
Common problems that title companies look for but could miss include:
- Forged property titles
- Liens on the home due to:
- Homeowner owing back taxes to federal, state, or local governments
- Unpaid home equity lines of credit (HELOCs)
- Unpaid bills from contractors
- Estate/inheritance issues
- Wills that are unclear or inconsistent,
- Multiple documents in a will that conflict with one another
- Previously unknown heirs to an estate making an ownership claim
- Easements on the property that weren’t properly documented and require you to modify or remove parts or all of the home
- Filing mistakes/human error
Is Title Insurance Worth the Cost?
If something does go wrong with the title or the ownership comes into question after you’ve purchased the home, a title insurance policy will cover any related legal costs to retain ownership of the property. In some cases, you may also inherit any previously undiscovered liens against the property.
Having title insurance will allow you to have the funds to pay off those unpredictable bills, which can make purchasing or negotiating for an owner’s title insurance policy well worth it.
Title insurance policies will range in price, between $500 to $3,500, depending on the value of the property, the provider, the location, and the coverage limits. You can also modify the types of coverage to include or exclude HOA violations, among other options that vary between companies and policies.
As legal proceedings over ownership and liens on the home can be extremely costly, these one-time fees will be something you’re happy to have paid if these issues do arise on your new property. Even if you can’t convince your seller to cover the payment, be sure to look at the policies available in your area before deciding whether or not you want to forgo this type of coverage.