Title insurance is one of those line items you, the buyer, sign off to pay along with the rest of the closing costs. It is possible that in all the dozens of times you must initial, sign, and otherwise verify every page of the huge stack of paper you go through whenever you buy a house with a mortgage, you might have missed it. It’s a pretty sure bet it was there however.
Who Needs Title Insurance?
So why buy title insurance? Simply put, title insurance protects the insured from losses incurred by defects, liens, or other problems with the title to the property you are purchasing. Unfortunately, you are not the insured. The insured is the mortgage lender who requires the insurance so the mortgage will be repaid even if title problems crop up.
As noted above, the title insurance is typically paid in a lump sum at closing. The cost of title insurance varies by state depending on the services and fees that may be included in the premium. The premium may only be the insurance or it could include title search costs and/or other closing costs. Additionally, title insurance must be re-purchased each time the mortgage is financed.
The cost of the insurance itself is commonly 0.5% of the purchase price of the home. So a home purchased for $200,000 will carry a cost of $1,000 for title insurance. Again, the lump sum may be more due the inclusion of fees and other closing costs. When compared with the price of the home, it doesn’t seem like quite so much, does it?
Realtors and mortgage brokers will be happy to recommend an insurer but realize that they likely benefit from the arrangement with title insurance companies offering incentives and commissions. You are not required to use the recommended insurer. If you want to shop around you simply need the following:
- A copy of the good faith estimate from the mortgage lender.
- Knowledge of what is typically included in title insurance in your state.
With these two pieces of information you can call around the various title insurance companies, or ask a real estate lawyer to recommend one, to request rates. Armed with these quotes you can then call the company recommended by the realtor or broker and ask for a discount to stay with them, especially if this is a re-finance situation.
How Are Title Insurance Rates Calculated?
In some states title insurance rates are regulated and so getting a break may not be possible. In addition, most mortgage lenders claim that the payoff rates are low with title insurance and most of the effort is expended before the sale fixing title defects before the buyers and sellers ever get to closing. Very few future claims post-closing are expected.
One way or another, title insurance will be bought and paid for during closing. Of course, you could always negotiate with the seller to get him to pay it instead.