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Title insurance protects homeowner's from any defects and errors in title. Understanding title insurance is an important step for anyone considering purchasing a home or refinancing a home loan.
Buying a home is a dream come true for many homeowners. However, there is always the potential for things to go wrong when the home you are buying has a title that is not 100% clear. A clear title simply means there are no liens, claims or errors when recording the ownership of the property.
While the law requires that a seller and their real estate agent do everything in their power to assure a clear title or disclose any issues on title, sometimes issues can slip through the cracks.
Fortunately, there is a way to protect yourself. This protection is called title insurance. Learn more about this service and discover why you should consider it when purchasing a home and why many lenders will require it.
Title insurance is a policy issued by a Title Company that will guarantee a homeowner has a properly recorded ownership to the property. It also insures against any errors in the title that were recorded previously. The cost of the policy is based on the value of the property and typically paid by the buyer, seller, or split between both parties. In a refinance of an existing loan, the title insurance costs are paid by the borrower of the loan.
There are two distinct types of title insurance, and each fulfills a different role. Understanding the difference is important.
Owners' Title Policy
This title policy is an optional insurance that offers protection to a home buyer. You will normally pay a one-time fee at closing. The policy remains active for as long as you own the property.
Lenders' Title Policy
A lender often requires this type of policy in a purchase or refinance transaction. It does not protect the buyer in any way if there is a title dispute. It only protects the lender's interest. The lender may allow you to roll the fee into the mortgage payment instead of paying out-of-pocket.
There are two main reasons why you should consider title insurance:
The cost of title insurance will vary from one situation to another and one property to another. The purchase price or property value is the primary basis of the cost-with certain fees added for closing. This difference could be significant, so it is worth checking into different options with different title companies first before you finalize any paperwork.
If you purchase a home for $350,000 in Los Angeles County, you can expect an Owners and Lenders Title Policy to cost approximately $1,750 typically 0.50% of the price or loan amount). This is a one-time fee paid at the closing of escrow.
Title insurance may seem like an added expense, and something you will likely never need. However, the one-time cost is often low enough that it is well worth the investment to protect yourself and your heirs from the potential disasters and legal battles that issues on title will give rise to.
Title insurance is one of the closing costs that you are allowed to shop around for, so take some time and get quotes from a few different title companies for the lowest cost before you make your final decision.
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