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Title Insurance: Required by Lenders, Recommended for Buyers

Posted by admin on October 6, 2022
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Title Insurance: Required by Lenders, Recommended for Buyers

 

When you’re purchasing a new home, no matter what type, you will pay for a couple of items in your closing costs. One of those things will be title insurance.

 

Now you could be wondering what title insurance is. And the answer to that is quite complicated.

 

 In this article, we’ll give you an in-depth explanation of what it is and what it does for you.

 

What is Lenders’ Title Insurance?

The lender’s title insurance is straightforward. It protects the lender’s claim to your newly purchased property. Your lender typically receives this protection in case another lender has a claim to your property and tries to take them to court.

 

Most lenders will not lend you a mortgage if their claim to your property is not protected. You will typically purchase the lender’s title insurance on the lender’s behalf.

 

Your final closing costs will include the lenders’ title insurance.

 

What is Homeowners’ Title Insurance?

Homeowners’ title insurance is optional. However, it is incredibly vital. Title insurance protects you if a third party (not involved in the home-buying process) claims rights to your property.

 

And these claims can come from several sources. For example, a debt collector who is owed money from the previous property owner or a building employee who has missed payments from their work on the property. 

 

In another scenario, someone who inherited your property years ago but never claimed it. Collectively, these scenarios are common.

 

Homeowners’ title insurance will protect you from encumbrances, easements, and liens, which we will discuss next.

 

Liens

Let’s break it down. Liens come from previous lenders who haven’t been paid by the previous owner of the real estate property.

 

As such, these previous lenders will have you, the current owner of the home, pay the bill. If you have title insurance, your provider will dispute this on your behalf.

 

Easements

Easements include other peoples’ rights to use your real estate property. These could include the electric company that provides you with electricity. The company will come to your property and do work (usually, they will tell you what you’re doing first). 

 

Other easements could include property lines, property rights sold by the previous owner to another party, easements by necessity, and perspective easements. Some of these easements limit your ability to use your property and, in some cases, affect your ownership.

 

Encumbrances

Encumbrance is an umbrella term and includes both lines and easements. They also cover leaseholder rights and zoning.

 

Scenarios Where Title Insurance Would Come in Handy

Suppose the previous homeowner owned taxes on the real estate property. In that case, you become responsible for the taxes they owe since you now own the property.

 

If another person claims to have rights to your new home, you must dispute this in court. If a construction worker was not paid for their work on your home, they might try to get backpay by filing a suit against the company who sold you the home, which puts you at risk.

 

Title insurance could protect you if any of these scenarios happen to you.

 

How Much Does Title Insurance Cost?

Title insurance can range from $300 to several thousand dollars. It depends on who your title insurance provider is, your home’s location, and your house’s price.

 

Title Insurance is Worth Considering

Title insurance can protect you from various issues that other insurance policies can’t. And if you have any concerns that others could have a claim to your new home, perhaps you should consider getting title insurance.

 

Do some research and consider the benefits and the cons. And don’t be afraid to ask your Realtor® for some advice. Don’t decide until you can make an informed decision.

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